Metals X Limited
Annual Report 2014

Plain-text annual report

2014 ANNUAL REPORT CORPORATE DIRECTORY DIRECTORS Peter Newton (Non-Executive Chairman) Peter Cook (Executive Director & CEO) Warren Hallam (Executive Director) Paul Cmrlec (Non-Executive Director) Andrew Ferguson (Non-Executive Director) Simon Heggen (Non-Executive Director) Xie Penggen (Non-Executive Director) Yimin Zhang (Alternate for Xie Penggen) COMPANY SECRETARY & CFO Fiona Van Maanen KEY MANAGEMENT Paul Hucker (Chief Operating Officer – Gold Division) Allan King (General Manager – Bluestone Mines Tasmania JV) Chris Mardon (General Manager – Higginsville Gold Operations) Michael Poepjes (General Manager – Central Murchison Gold Project) Jake Russell (Group Chief Geologist) REGISTERED OFFICE Level 3, 18-32 Parliament Place West Perth WA 6005 Phone: +61 8 9220 5700 Fax: +61 8 9220 5757 E-mail: reception@metalsx.com.au Website: www.metalsx.com.au POSTAL ADDRESS PO Box 1959 West Perth WA 6872 SECURITIES EXCHANGE Listed on the Australian Securities Exchange, OTCQX –USA, OTC Germany ASX Code: MLX OTCQX Code: MTXXY GR Code: FG5 SHARE REGISTRY Security Transfer Registrars Pty Ltd 770 Canning Highway Applecross WA 6153 Phone: 61-8-9315 2333 Fax: 61-8-9315 2233 E-mail: registrar@securitytransfer.com.au DOMICILE AND COUNTRY OF INCORPORATION Australia TABLE OFCONTENTS COMPANY PROFILE GROUP ANNUAL HIGHLIGHTS CHAIRMAN’S STATEMENT CEO’s REPORT OPERATING PHILOSOPHY DIRECTORS’ REPORT AUDITOR’S INDEPENDENCE DECLARATION CORPORATE GOVERNANCE STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2014 CONSOLIDATED STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30 JUNE 2014 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2014 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2014 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 DIRECTORS’ DECLARATION INDEPENDENT AUDIT REPORT SECURITY HOLDER INFORMATION AS AT 22 SEPTEMBER 2014 TABLES OF MINERAL RESOURCES AND ORE RESERVES 4 5 6 7 8 9 32 33 44 45 46 47 48 113 114 116 118 [ South Kalgoorlie Gold Operations ] COMPANY PROFILE Metals X Limited is an Australian based diversified metals producer and explorer. Metals X is focused on identifying, developing and bringing into production high quality mining projects. Metals X currently operates in three divisions, representing the three priority metals: gold, tin and nickel. Metals X’s gold division is based on two gold production projects and two gold development projects. The combined output of the Higginsville Gold Operations and the South Kalgoorlie Gold Operations in Western Australia make Metals X an Australian Top 10 producer of gold. Metals X’s two gold development projects are the Central Murchison Gold Project in Western Australia and the Rover Project in the Northern Territory. Metals X’s tin assets in Tasmania make the company unique as the only producing tin company in Australia with the largest Mineral Resources and Ore Reserves and one of the few publicly listed companies in the world with significant exposure to tin. The Company’s nickel assets include the massive Wingellina Nickel Project, one of the world’s largest undeveloped nickel-cobalt limonite deposits. The Wingellina Project is supported by a substantial amount of development and feasibility work, has significant further upside exploration potential and has attracted the attention of international partners. ROVER CLAUDE HILLS MT DAVIES CMGP WINGELLINA HIGGINSVILLE SOUTH KALGOORLIE MT BISCHOFF RENISON 4 COMPANY PROFILE GROUP ANNUAL HIGHLIGHTS The 2013/2014 FY was an excellent year for the company, which witnessed a strong turnaround in our physical and fiscal performance. Our gold business expanded with the acquisition of the Higginsville and South Kalgoorlie Operations, which completed in October 2013. During our nine months of ownership these operations produced 138,193 ounces at a total cost of sales of $974 per ounce of gold. A further acquisition late in the financial year of the idle Meekatharra Gold Operations provides an excellent value growth proposition and the catalyst for further expansion of the gold group. The tin operations continued with a steady performance and a consistent, albeit lower contribution to underlying profit. The Company continued to expand on its growth and development as a multi-commodity diversified miner, effectively self-funding $48.7M in capital and exploration works during the year. Key financial highlights for the year compared to the previous year were: • Revenue of $238.6M, up 247% • EBITDA of $71.7M, up 679% • Profit of $37.4M, up 332% • Net Operating Cashflow $73.4M, up 640% • Return on Equity of 14.5% • Net Cash at bank at 30 June 2014 of $57.1M • Cash and Working Capital at 30 June 2014 of $80.3M • Net Debt Nil • Net Assets increased to $311.7M, up 14% GROUP ANNUAL HIGHLIGHTS 5 CHAIRMAN’S LETTER Dear Shareholders It is my pleasure to report on what has been an excellent and transforming year for the Company. Despite, the continuation of very tight capital and investment markets, your Company has shone through with excellent growth and appreciation in our share price. The strength of our balance sheet and the experience of our executive teams led by CEO Peter Cook and Warren Hallam have won us excellent reward in the identification, completion and transition to ownership of a number of gold projects during the year. These have set the Company up for the future with an opportunity to build significant and longer-term gold production without debt or capital burden. The new and rapidly evolving gold division has witnessed a seamless and fruitful transition to evolve as a significant player in the Australian gold scene which is overseen by our Chief Operating Officer – Paul Hucker. Our future in gold looks bright and this year we are excited by the activity that should see our expanded Central Murchison Gold Project re-emerge as a producer in 2015. Our executive teams will continue to shrewdly and diligently manage the risk-reward balance from these emerging projects and we all pray for a stronger gold price to assist execution of their strategy without hindrance. Our tin operations in Tasmania continue to deliver a steady and profitable performance. This is somewhat overshadowed by the huge success of significant exploration success and growth in Mineral Resources and Ore Reserves which have set this mine up for a long-term sustainable life of tin production. Our massive Wingellina Nickel-Cobalt-Iron Project continues to progress toward development options and rising nickel prices during the year have again seen this project rise to be an emerging development option within that sector. Pleasingly, in all measures of fiscal performance we have exceeded a depressed and depressing market. Our group EBITDA was up 679% over the previous year to of $71.7M, our underlying profit 332% to $37.4M and our cash and working capital has built to a healthy $80.3M by the end of the financial year. In closing, I like to thank our shareholders, our staff and our stakeholders for your loyalty and continued support and belief in the Company for another year. We enter the ensuing year in good shape with exciting things to come. Peter J Newton Non-Executive Chairman 6 CHAIRMAN’S LETTER CEO’S REPORT Dear Shareholders I am pleased to report on an excellent and busy year in which we have managed to use the ‘doom and gloom’ of depressed metals and mining markets to our advantage. Falling metal prices and oppressive equity markets always create opportunity for the brave, the willing and the capable. There are always assets at reasonable prices and opportunities to grow if you have capacity to take advantage of those. I am pleased to say we have had that capacity. Our strong balance sheet, debt-free status, experienced and dynamic team have enabled us to capitalize on some outstanding growth options for the Company. I single out the acquisition of the whole Australian Business Unit of Alacer Gold Corp. (Yukon) in September 2013 and the recently completed acquisition of the Meekatharra Gold Operations as major coups for the group. In both of these gold acquisitions we have bought substantial capital, plant, infrastructure and resources at a fraction of their replacement cost and put these assets to work to generate excellent profits and future growth opportunity. Whilst game changing, these should not eclipse the efforts of our hard-working management and staff in the operations and the advancement of our many other assets during the year. In this regard I commend and thank our key management and their subordinate staff for their commitment and focus in delivering an excellent result for our shareholders. Our key value at Metals X is the recognition that we work for our shareholders and each other. The only true measure of our performance is our share price. I am glad to say has risen strongly over the year although some may say recovered, to finish at $0.26 and 260% up from our low of $0.10 for the year. Our strategy of diversification across metals and revenue streams has created stability as our cash flows are not linked to a sole commodity. That said, we wait in joyful hope of the coming of a higher nickel price and with it the opportunity to see our ‘world-class’ Wingellina Nickel-Cobalt- Iron deposit developed. This massive project is a game changer for the Company and it dwarfs all other assets in the group. I look forward to an exciting year ahead, where milestone events will be the re-development of the HBJ underground mine at the South Kalgoorlie Operations, the commencement of operations at the expanded Central Murchison Gold Project in the mid-west of Western Australia, a decision on the Rentails Tin Expansion Project in our Tin Joint Venture, and finally the finalisation of a partnering agreement with a major who has the technical capacity and financial capability to develop the Wingellina Project in a manner that provides low-risk and good returns for our shareholders. In the meantime, our team and I will just get on with managing our assets in the best way we can. Peter Cook CEO & Executive Director CEO’S REPORT 7 OPERATING PHILOSOPHY As a diversified miner, Metals X has exposure to a number of commodities and revenue streams. The corporate structure with which we operate is somewhat divisional by commodity and corporate entity. The key areas being our tin, nickel and gold divisions. Most of our development projects sit within these structures. As an operating team, our objective is not to take a head-office control approach. We have a team of senior executives and technical staff in our corporate office and we perform technical evaluations, feasibilities and shared support functions from there. Operationally we recognise that we are empowered to run a business for and on behalf of our shareholders. We recognize the importance of ownership and results from each business and fundamentally have the view that each of our operations is separately a small business/mine and this works on the principles and co-operation of the key staff members at that site. As executives and overseers our role is to ensure that we nurture a culture that ensures all our forces, resources, experiences and views are pulling in the same direction. We take the safety of our staff, our contractors and all related stakeholders very seriously but with a logical and practical approach to manage to an exceptional level of risk. We operate with a high degree of respect and ethics in the management of our affairs and dealings with both internal and external stakeholders. We however, recognise that we are a business first and that the objectives and outcomes in mining and management of our assets is such that the marriage of these externalities needs to occur with balance, practicality and purpose. For further details on financial and operational performance during the financial year refer to page 12 of the Directors’ Report. 8 OPERATING PHILOSOPHY [ Higginsville Gold Operations ] DIRECTORS’ REPORT The Directors submit their report together with the financial report of Metals X Limited (“Metals X” or “the Company”) and of the Consolidated Entity, being the Company and its controlled entities, for the year ended 30 June 2014. DIRECTORS The names and details of the Company’s Directors in office during the financial period and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Names, qualifications, experience and special responsibilities Peter Newton – Non-Executive Chairman Mr Newton was a stockbroker for 25 years until 1994. Since then he has been a significant participant in the Australian resource industry as an investor and a director of a number of listed companies. In past years he has been the Chairman of both Hill 50 Limited and Abelle Limited. Mr Newton is also the Chairman of the Company’s Remuneration & Nomination Committee. Mr Newton has held no public company directorships in the past three years. Peter Cook – Chief Executive Officer and Executive Director Mr Cook is a Geologist (BSc (Applied Geology)) and a Mineral Economist (MSc (Min. Econ), MAusIMM). In past years he has been the Managing Director of Hill 50 Limited, the Chief Executive Officer of Harmony Gold Australia Pty Ltd, Managing Director of Abelle Limited and Chairman of Metals Exploration Limited, Aragon Resources Limited and Aziana Limited. He has considerable experience in the fields of exploration and project and corporate management of mining companies. During the past three years he has served as a director of the following public listed companies: • Westgold Resources Limited* (Appointed 19 March 2007); • Pacific Niugini Limited* (Appointed 31 August 2009); • Kingsrose Mining Limited (Appointed 10 October 2010 – Resigned 21 August 2012); and • Aziana Limited* (Appointed 30 May 2011); Warren Hallam - Executive Director Mr Hallam is a Metallurgist (B. App Sci (Metallurgy)) and a Mineral Economist (MSc (Min. Econ)) and holds a Graduate Diploma in finance. He has considerable technical and commercial experience within the resources industry. In past years he was the Managing Director of Metals Exploration Limited and a senior executive of WMC Limited. During the past three years he has served as a director of the following public listed companies: • Westgold Resources Limited* (Appointed 18 March 2010); and • Aziana Limited (Appointed 30 May 2011 – Resigned 11 April 2014). DIRECTOR’S REPORT 9 Xie Penggen – Non-Executive Director Mr Xie Penggen is a minerals processing engineer with over 24 years of experience in the mining industry. Mr Xie commenced his career within the Jinchuan Group where he has undertaken various operational, technical and management roles. He is currently an executive in Jinchuan’s global investment group which is responsible for the Group’s international investments. Mr Penggen has held no public company directorships in the past three years. Yimin Zhang – Alternate Non-Executive Director Mr Zhang joined the Board to act as an alternate director for Xie Penggen. Mr Zhang is the Chief Representative for Jinchuan Australia and is also an Executive Director of Sino Nickel Pty Limited and Albidon Limited. Mr Zhang has worked for Jinchuan since 1981 and has been posted to several overseas positions to which he has been involved in numerous Jinchuan co-operative ventures. Mr Zhang holds a Diploma from the Metallurgical and Architectural Institute of Chung Chan. During the past three years he has served as a director of the following public listed company: • Albidon Limited (Appointed 9 September 2009 – Resigned 2 August 2013). Andrew Ferguson - Non-Executive Director Mr Ferguson is an Executive Director and the Chief Executive Officer of APAC Resources Limited. Mr Ferguson holds a Bachelor of Science Degree in Natural Resource Development and worked as a mining engineer in Western Australia in the mid 1990’s. In 2003, Mr Ferguson co-founded New City Investment Managers in the United Kingdom. He has a proven track record in fund management and was the former co-fund manager of City Natural Resources High Yield Trust, which was awarded ’Best UK Investment Trust’ in 2006. In addition, he managed New City High Yield Trust Ltd and Geiger Counter Ltd. He worked as Chief Investment Officer for New City Investment Managers CQS Hong Kong, a financial institution providing investment management services to a variety of investors. He has 14 years of experience in the finance industry specialising in global natural resources. Mr Ferguson also serves on the Company’s Audit and Remuneration & Nomination Committees. During the past three years he has served as a director of the following public listed company: • ABM Resources Limited* (Appointed 9 July 2012). Simon Heggen - Non-Executive Director Mr Heggen holds Bachelor of Economics and Bachelor of Laws Degrees from the Australian National University and worked in Investment Banking during the late 1980’s and early 1990’s before joining Wesfarmers’ Business Development team in Perth. In 1995 he returned to Melbourne to join WMC Resources in a senior corporate development role. In that position he worked on many of the transactions and development projects undertaken by the company up to and including the BHP Billiton takeover. Following that, he worked for the Cement Division of Boral Limited in Sydney as General Manager, Business Development & Strategic Planning. He then worked in stockbroking and as a consultant to the Resources sector before becoming Managing Director of a listed exploration company Resource Star Limited. Mr Heggen has around 28 years’ proven experience in strategic planning, corporate development, M&A and corporate finance within the Resources sector. Mr Heggen is Chairman of the Company’s Audit Committee and also serves on the Remuneration & Nomination Committee. During the past three years he has served as a director of the following public listed company: • Resource Star Limited (Appointed 9 July 2012 – Resigned 5 April 2013). 10 DIRECTOR’S REPORT Paul Cmrlec – Independent Non-Executive Director (Appointed - 23 July 2013) Mr Cmrlec holds a Bachelor of Mining Engineering degree from the University of South Australia. He has extensive experience in feasibility studies and project development and has held a number of operational and planning roles, including the position of Underground Manager at several Western Australian gold Mines. Mr Cmrlec is currently the Managing Director of Pacific Niugini Limited. He was previously a Non-Executive Director of Westgold Resources Limited, the Group Underground Mining Engineer for Harmony Gold Australia and the Group Mining Engineer for Metals X. In addition to operational mining roles, Mr Cmrlec’s recent experience includes the general management of major feasibility studies for the Wafi Copper-Gold deposit in Papua New Guinea, and the Wingellina Nickel-Cobalt deposit in the Central Musgraves region of Western Australia. Mr Cmrlec also serves on the Company’s Audit and Remuneration & Nomination Committees During the past three years he has served as a director of the following public listed companies: • Pacific Niugini Limited* (Appointed 3 June 2010). * Denotes current directorship. INTERESTS IN THE SHARES OF THE COMPANY As at the date of this report, the interests of the Directors in the shares and options of Metals X Limited were: Director PM Cmrlec PG Cook AC Ferguson WS Hallam S D Heggen P J Newton X Penggen (1) Y Zhang (Alt Director) Total Fully Paid Ordinary Shares Options expiring on 30 November 2014 exercisable at $0.30 357,850 70,316,705 - 6,350,000 20,000 54,100,000 176,000,000 - 307,144,555 - - - 1,250,000 - - - - 1,250,000 (1) X Penggen is a director of Jinchuan Group Limited which holds 176,000,000 fully paid ordinary shares in the Company. COMPANY SECRETARY Fiona Van Maanen – Chief Financial Officer and Company Secretary Mrs Van Maanen is a CPA, holds a Bachelor of Business (Accounting) degree and a Graduate Diploma in Company Secretarial Practice. Mrs Van Maanen has a number of years of accounting and financial management experience in the mining and resources industry and has been with the Company since incorporation. DIRECTOR’S REPORT 11 DIVIDENDS No dividends have been paid or declared by the Company during the financial period or up to the date of this report. Refer to note 10 for available franking credits. PRINCIPAL ACTIVITIES The principal activities during the year of the Consolidated Entity were: • • • exploration for and the mining, processing, production and marketing of tin and gold in Australia; exploration and development of nickel projects in Australia; and exploration and development of precious and base metals projects in Australia. There have been no significant changes in the nature of these activities during the year. EMPLOYEES The Consolidated Entity employed 254 employees at 30 June 2014 (2013: 104). OPERATING AND FINANCIAL REVIEW OPERATING RESULTS The Consolidated Entity’s net profit after income tax for the period was $37,451,737 (2013: $8,672,314), an increase of 332% as compared to the previous financial year. The results reflect: • Revenue from gold sales of $161,051,109 resulting from the acquisition of the Higginsville Gold Operations (“HGO”) and the South Kalgoorlie Operations (“SKO”) from Alacer Gold Corp. on 29 October 2013. • • • • Tin sales revenue of $75,246,131 (2013: $62,805,991) for the year from the Renison Tin Project (50% owned) was 20% higher compared with the 2013 year due to a 9% increase in the tin price. Cost of sales of $186,298,890 (2013: $59,228,471) and cash flows from operating activities of $73,396,482 (2013: $9,920,956) increased due to the acquisition of the HGO and SKO. Impairment losses on “available-for-sale financial assets” of $1,622,700 (2013: $6,608,070) as a result of a decline in the share prices of investments. Exploration and evaluation expenditure write off of $6,974,352 (2013: $484,422) due to a review of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to those areas of interest. • Prior year profits reflect an income tax benefit of $10,631,770 recognised following the merger with Westgold Resources Limited in October 2012. 12 DIRECTOR’S REPORT REVIEW OF FINANCIAL CONDITION Liquidity and Capital Resources The consolidated statement of cash flows illustrates that there was a decrease in cash and cash equivalents in the year ended 30 June 2014 of $4,344,249 (2013: $18,431,760 increase). The decrease in cash inflow in comparison with the prior year was due to the factors detailed below. There has been an increase in the amount of cash generated from operating activities to $73,396,482 (2013: $9,920,956), which is due to acquisition of the HGO and SKO as well as an increase in revenue from the Renison Tin Project. There has been an increase in the amount of cash outflow on investing activities of $77,975,994 (2013: inflow $10,514,536), which was mainly attributable to acquisition of gold assets (HGO and SKO $44M and Meekatharra Gold Operation (“MGO”) $9.4M) and capital re-investment in the gold and tin projects. In the previous year cash inflows were mainly attributable to the sale of the Independence Group NL investment for $28,649,801, which was offset by capital re-investment at the Renison Tin Project and the acquisition of securities. Financing activities resulted in a cash inflow of $235,263 (2013: $1,953,732 outflow). This is mainly due to proceeds from share issues from option conversions and extinguishment of environmental bonds. Cash outflows in the previous year were mainly due to due to repayment of finance lease liabilities. The Consolidated Entity’s debt has decreased by $14,286 (2013: $4,262,449) to $172,987 (2013: $187,813) over the last year due to repayment of finance leases. Of the Consolidated Entity’s debt, 68% ($116,865) is repayable within one year of 30 June 2014, compared to 36% ($67,900) in the previous year. Capital Expenditure There has been an increase in cash used to purchase property, plant and equipment in 2014 to $12,195,847 from $2,130,901 in 2013 due to the acquisition of the MGO assets in June 2014. Capital commitments of $431,880 (2013: $454,301) existed at the reporting date, principally relating to the purchase of plant and equipment. SHARE ISSUES DURING THE YEAR Share Placements There were no share placements during the financial year. Share Buy-Back There were no share buy-backs during the financial year. Option Conversions During the financial year 2,750,000 options were converted to acquire fully paid ordinary shares in the Company at a weighted average exercise price of $0.13, refer to note 27(f) for further details. DIRECTOR’S REPORT 13 CORPORATE INFORMATION CORPORATE STRUCTURE ACN 110 150 055 TIN DIVISION 100% BLUESTONE AUSTRALIA PTY LTD ACN 108 490 820 100% BLUESTONE MINES TASMANIA PTY LTD ACN 108 492 628 50% BLUESTONE MINES TASMANIA JOINT VENTURE PTY LTD ACN 141 265 974 RENISON RENTAILS MT BISCHOFF 100% DIORO EXPLORATION NL ACN 009 271 532 100% HBJ MINERALS PTY LTD ACN 127 026 519 100% HAMPTON GOLD MINING AREAS LTD ACN 009 473 054 GOLD DIVISION NICKEL DIVISION 100% WESTGOLD RESOURCES PTY LTD ACN 009 260 306 100% METALS EXPLORATION PTY LTD ACN 005 483 009 100% 100% HILL 51 PTY LTD ACN 147 473 970 100% AVOCA RESOURCES PTY LTD ACN 097 083 282 100% 100% CASTILE RESOURCES PTY LTD ACN 124 314 085 ROVER PROJECT ARAGON RESOURCES PTY LTD ACN 114 714 662 100% FULCRUM RESOURCES PTY LTD ACN 118 431 182 100% BIG BELL GOLD OPERATIONS PTY LTD ACN 090 642 809 100% AVOCA MINING PTY LTD ACN 108 547 217 SOUTH KALGOORLIE HIGGINSVILLE CMGP METEX NICKEL PTY LTD ACN 108 243 358 HINCKLEY RANGE PTY LTD ACN 052 098 496 AUSTRAL NICKEL PTY LTD ACN 092 816 558 WINGELLINA PROJECT CLAUDE HILLS PROJECT REVIEW OF OPERATIONS TIN DIVISION Metals X is a globally significant tin producer through its 50% ownership of the Bluestone Mines Tasmania Joint Venture. The key assets of the Joint Venture are the world class Renison Tin Mine, a 700,000tpa tin concentrator, the Renison Expansion Project (Rentails Project) and the Mount Bischoff Project. RENISON TIN PROJECT (50%) The Renison Tin Project is located approximately 15 km north-east of Zeehan on Tasmania’s west coast. The Mount Bischoff open pit mine (not operational) is located approximately 80 km north of the Renison Tin Project. The tin operations continued with a steady operating performance for the year. Mine productivity continues to be the driver of output and productivity, which increased steadily during the year and is expected to continue to improve as the higher grade areas of the mine are accessed in the ensuing year. An extensive resource development focus at the mine has culminated in an increase in the Total Mineral Resource Estimate to 33.97Mt at 0.82% tin, containing 279,000tn of tin metal with a Total Ore Reserve Estimate of 26.26Mt at 0.66% tin, containing 172,000tn of tin metal*. 14 DIRECTOR’S REPORT Renison Project Operating Results 2014 The operating results for Metals X’s 50% share of the Renison Project in 2014 are summarised below: Ore Tonnes Grade (% Sn) Tin Concentration Tonnes Processed Grade (% Sn) Recovery (%) Concentrate Grade (% Sn) Copper Metal Produced (tonnes) Tin Metal Produced (tonnes) Tin Metal Sales (tonnes) Average Realised Tin Price ($/t Sn) Depreciation & Amortisation ($/t Sn) Total Cost of Sales ($/t Sn) Renison Project Tin Concentrator 2014 317,538 1.45 317,168 1.45 68 56 157 3,108 3,075 $24,471 $2,727 $21,569 2013 300,177 1.56 301,924 1.55 67 55 87 3,159 3,060 $20,525 $3,453 $19,792 The tin concentrator performance showed excellent availabilities and utilisation. However, production from the tin concentrator throughout the year was constrained at times by mine output and by increasingly harder ores from the Federal lodes. The addition of softer and more sulphidic skarn-ore from the Northern part of the mine has benefitted throughout, with nameplate capacity being exceeded on numerous occasions. Metallurgical recoveries have been generally in line with expectations and circuit changes and equipment additions undertaken throughout the year continuing to provide a positive impact on recoveries. The processing plant’s copper circuit was operated on an intermittent basis when higher copper levels in the feed grade and attractive plant dynamics allowed. Renison Expansion Project (“Rentails Project”) The Renison tin concentrator has generated a significant quantity of process tailings accumulated over its lifetime of operation. The Rentails Project aims to re-process and recover tin and copper from the tailings by the application of modern processing technology in flotation, gravity and tin-fuming methods. The Total Mineral Resource Estimate for the Rentails project is estimated at 21.2Mt at an average grade of 0.45% Sn and 0.21% Cu, containing 95,000t of tin and 45,000t of copper*. A Definitive Feasibility Study (“DFS”) of the mining and re-processing of the tailings for the project was completed in 2009. The DFS concluded that a 10-year project could be established using an integrated 2Mtpa tin concentrator and tin-fumer plant could be constructed to produce approximately 5,300 tonnes of tin and 2,000 tonnes of copper contained in concentrate per annum. Metals X continues to work with its project partners to establish the best path to bring the project into development. Mt Bischoff Project The Mt Bischoff Project is located approximately 80 km north of the Renison mine. Mt Bischoff was a significant historical tin operation, producing some 60,000 tonnes of tin metal since the late 1800’s. Open pit mining by Metals X between 2009 and 2011 produced a further 5,000 tonnes of tin metal before the initial open pit mine was depleted. Whilst the mine remains on care and maintenance, significant resources remain at depth and numerous historically mined areas remain underexplored. DIRECTOR’S REPORT 15 Collingwood Tin Project The Company disposed of the Collingwood Tin Project during the year. The project is located in Far North Queensland approximately 30 km south of Cooktown and has been on care and maintenance since the Company decided to dispose of the assets in 2012. NICKEL DIVISION Metals X’s nickel strategy is focused on the Central Musgrave Project (“CMP”) which straddles the triple-point of the WA/NT/SA borders. The project represents the Company’s key nickel assets and comprises of the globally significant Wingellina Ni–Co deposit, the Claude Hills Nickel deposit and the Mt Davies exploration prospects. The project encompasses a large tract of prospective exploration tenure encompassing the whole of the Wingellina layered intrusive sub-set of the Giles Complex rocks in Western and Southern Australia. The key focus of the Nickel Division is to bring the Wingellina Nickel–Cobalt Project into production. Metals X continues to use its internal resources to complete long lead-time studies required for the DFS, including infrastructure, roads, rail and ports studies, and the completion of the Public Environmental Review (“PER”) documentation which is required for final EPA approvals. Further, discussions with government stakeholders (WA, SA, NT) and the various local council impacted by the project continued in relation to road, rail and port access. In addition a number of logistics study are underway. During the year, Metals X completed the buyout of the interests of Rio Tinto in the Mt Davies JV expanding Metals X’s exploration rights over the whole of the Wingellina layered intrusive complex, which provides large upside for nickeliferous limonite additions as well as nickel-copper sulphide targets. CMP has a Total Mineral Resource Estimate of 216.5Mt Ni at 0.98%, containing 2.12Mt nickel metal with a Total Ore Reserve Estimate of 167.5Mt at 0.98% Ni, containing 1.6Mt nickel metal*. GOLD DIVISION On 29 October 2013 Metals X began to expand its gold division with the signing of an agreement to acquire the Australian gold portfolio of Alacer Gold Corp (“Alacer”). Under the agreement Metals X, through its wholly owned subsidiary, Westgold Resources Pty Ltd (“Westgold”) acquired the whole Australian Business Unit of Alacer. The assets consist of the HGO and the SKO. The final purchase consideration was $44M. The operating results for the gold operation in 2014 are summarised below: Mine Production Ore Tonnes ROM Grade (g/t Au) Processing Tonnes Processed Head Grade (g/t Au) Recovery % Gold Produced (oz) Average Realised Gold Price ($/oz) Depreciation & Amortisation ($/oz) Total Cost of Sales ($/oz) HGO 724,616 5.56 710,769 5.63 95.8% 123,361 1,400 $196 $1,009 SKO 59,230 3.22 317,126 1.62 88.6% 14,832 1,401 $167 $684 2014 783,846 5.39 1,027,895 4.39 95.2% 138,193 1,400 $193 $974 16 DIRECTOR’S REPORT Whilst production from 1 October 2013 is attributable to Metals X, settlement of the transaction did not occur until 29 October 2013. Under accounting standards the revenue and expenditure from production for the period from the effective date of 1 October 2013 to the accounting acquisition date (in this case the settlement date) is not recognised in the financial statements. For the purpose of benchmarking, Metals X has calculated the performance from production based on the assumption that the transaction took place on the effective date and therefore have included the entire quarter’s production statistics in the above table. The Higginsville Gold Operations (“HGO”) HGO consists of a modern 1.3Mtpa capacity CIP plant, a 300 person village, two underground mines (Trident & Chalice), and requisite mine and process infrastructure. Mining at HGO during the year was focused on the Trident and the Chalice underground mines. A considerable exploration program at the Chalice mine has confirmed that mining will be completed towards the end of 2014. Ore tonnage from Chalice will be replaced with open pit ores from the Lake Cowan Group of pits which are located 10 km north-east of the processing plant. Mining of the first open pit Louis Pit will commence in September 2014. The Company will continue with its exploration focus to provide additional ore feed for the plant. HGO has a Total Mineral Resource Estimate of 13.3Mt at 2.88 g/t Au, containing 1.2Moz of gold with a Total Ore Reserve Estimate of 4.5Mt at 3.67 g/t, containing 0.5Moz of gold*. The South Kalgoorlie Operations (“SKO”) SKO consists of an older 1.2Mtpa capacity CIP plant and infrastructure. Numerous open pit and underground options exist within the tenement area which has been mined over the past 25 years. During the year SKO operated predominantly as a toll processing plant and completed its arrangement with La Mancha in May 2014. In June 2014 SKO commenced toll processing with a number of other third parties. During the year Metals X conducted a number of exploration programs and expects to recommence mining at SKO in the 2015 financial year. In the short term it intends to continue to process its low grade ore stockpiles and run the plant as a toll processing business in the Kalgoorlie region. SKO has a Total Mineral Resource Estimate of 50.4Mt at 1.98 g/t, containing 3.2Moz gold with a Total Ore Reserve Estimate of 1.0Mt at 0.76 g/t, containing 0.23Moz of gold, which are low grade stocks*. Metals X is currently in the process of building both short term and long term development plans and the ore reserve estimates for those plans. The Central Murchison Gold Project (“CMGP”) The CMGP is a development ready project with a number of open pit and underground mining options. On 27 June 2014 Metals X subsidiary Big Bell Gold Operations Pty Ltd acquired the Meekatharra Gold Operations (“MGO”) assets for $9.8M. The MGO assets consist of a fully refurbished processing plant, camp and infrastructure as well as significant inventory of mineral resources and reserves. The MGO assets have been integrated into the existing CMGP and works have commenced on a development strategy to bring the region into production in 2015. The CMGP (excluding MGO) has a Total Mineral Resource Estimate of 62.9Mt at 2.48 g/t, containing 5.0Moz of gold with a Total Ore Reserve Estimate of 15.5Mt at 2.36 g/t, containing 1.2Moz of gold. The MGO has a Total Mineral Resource Estimate of 67.5Mt at 1.70 g/t, containing 3.6Moz of gold*. Metals X is still in the process of reviewing the Total Mineral Resource Estimate at MGO which was prepared by the previous owner. DIRECTOR’S REPORT 17 The Rover Project The Rover Project is a postulated undercover repetition of the rich Tennant Creek goldfield 80 km to the north-east. Exploration to date has so far fully tested three blind targets within the project, each of which has defined significant mineralised IOCG (“Iron Oxide Copper Gold”) systems at Rover 1, Explorer 108 and Explorer 142 prospects. The Rover 1 Prospect is a virgin IOCG discovery and has a Total Mineral Resource Estimate of 6.8Mt at 1.73g/t Au, 1.2% Cu, 0.14% Bi and 0.06% Co. The Explorer 108 prospect has a Total Mineral Resource Estimate of 11.9Mt at 3.24% Zn, 2.00 pb and 11.14g/t Ag*. The project area is proximal to a major infrastructure corridor adjacent to Central Australian Railway, gas pipeline and Stuart Highway. Metals X continues to review development options for the projects. In the ensuing years the Company will undertake a further phase of diamond drilling to test the extremities of the bonanza gold and copper zones. In addition the drilling will collect geotechnical information to assist with reviews of the merits of shaft sinking versus decline access. * For further details on Total Mineral Resource and Reserve Estimates refer to ASX announcement dated 23 July 2014. OTHER EXPLORATION ASSETS Warumpi Joint Operation Warumpi is a significant exploration holding at the base of the Arunta province in the Northern Territory, which has recently been identified as being geologically, tectono-thermally and temporally similar to Proterozoic basins in Eastern Australia that host five of the world’s ten largest stratabound Pb-Zn deposits (Broken Hill, Hilton-George Fisher, Mount Isa, MacArthur River and Century). Metals X is currently undertaking the first modern exploration program in this highly underexplored region. INVESTMENTS Metals X has previously made a number of smaller investments in opportunities that suit its future plans or are within emerging markets with growth opportunities. This investment strategy allows Metals X to fund and finance exploration and development activities in dedicated entities without competition with the capital requirements of our own operations. Metals X’s current investment holdings are: • Reed Resources Limited (“Reed”) (ASX:RDR) 0.39% (2013: 4.99%); • Mongolian Resource Corporation Limited (“MRC”) (ASX:MUB) 14.76% (2013: 14.76%); and • Aziana Limited (“Aziana”) (ASX:AZK) 13.73% (2013, 13.73%). Metals X is no longer pursuing this style of investment strategy. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS Total equity increased by 14% ($37,888,810) to $311,659,173 (2013: $273,770,363). The movement was largely as a result of the acquisition of the Alacer Australian gold business unit and the MGO gold assets. SIGNIFICANT EVENTS AFTER THE BALANCE DATE On 4 August 2014 the Company announced that it had entered into an agreement with Southern Gold Limited (“Southern”) on the terms of a mining and profit sharing agreement to enable Southern’s Cannon Gold Project to be mined and processed at the Company’s processing plant at SKO. 18 DIRECTOR’S REPORT LIKELY DEVELOPMENTS AND EXPECTED RESULTS It is expected that the Consolidated Entity will continue its exploration, mining, processing, production and marketing of tin and copper concentrates and gold bullion in Australia, and will continue the development of its nickel and gold exploration projects. These are described in more detail in the Review of Operations above. ENVIRONMENTAL REGULATION AND PERFORMANCE The Consolidated Entity’s activities are subject to the relevant environmental protection legislation (Commonwealth and State legislation) at its projects. The Consolidated Entity believes that sound environmental practice is not only a management obligation but the responsibility of every employee and contractor. During the period our achievements in the environmental area included: • • continued focus on environmental management; and continuous review and improvement of our environmental management systems across all projects. No fines were imposed and no prosecutions were instituted by a regulatory body during the period. SHARE OPTIONS Unissued shares As at the date of this report, there were 12,312,500 unissued ordinary shares under option (6,565,000 at reporting date), refer to note 27(e). There are no participating rights or entitlements inherent in the options and option holders are not entitled to participate in new issues of capital or bonus issues offered or made to shareholders during the currency of the options. Shares issued as a result of exercising options During the financial year 2,750,000 options were converted to acquire fully paid ordinary shares in the Company at a weighted average exercise price of $0.13, refer to note 27(f) for further details. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS During the financial year, the Company paid a premium in respect of a contract of insurance to insure Directors and officers of the Company and related bodies corporate against those liabilities for which insurance is permitted under section 199B of the Corporations Act 2001. Disclosure of the nature of the liabilities and the amount of the premium is prohibited under the conditions of the contract of insurance. INDEMNIFICATION OF AUDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. DIRECTOR’S REPORT 19 DIRECTORS’ MEETINGS The number of meetings of Directors’ (including meetings of committees of Directors) held during the year and the number of meetings attended by each Director was as follows: Directors Meetings Audit Remuneration No of meetings held: No of meetings attended: PG Cook PM Cmrlec AC Ferguson WS Hallam SD Heggen PJ Newton X Penggen Y Zhang (Alt Director) 10 10 8 10 10 10 10 10 10 2 - - 2 - 2 2 - - 1 - 1 1 - 1 1 - - All Directors were eligible to attend all Director’s meetings held, except for: • PM Cmrlec – eligible to attend 8 meetings; COMMITTEE MEMBERSHIP As at the date of this report, the Company had an Audit Committee and a Remuneration and Nomination Committee of the Board of Directors. Members acting on the committees of the Board during the year were: Audit SD Heggen * PJ Newton AC Ferguson PM Cmrlec Notes: Remuneration PJ Newton * SD Heggen AC Ferguson PM Cmrlec * Designates the Chairman of the Committee. 20 DIRECTOR’S REPORT REMUNERATION REPORT (AUDITED) This remuneration report for the year ended 30 June 2014 outlines the remuneration arrangements of the Consolidated Entity in accordance with the requirements of the Corporations Act 2001 (“the Act”) and its regulations. This information has been audited as required by section 308(3C) of the Act. The remuneration report is presented under the following sections: Introduction 1. 2. Remuneration governance 3. Non-executive Director remuneration arrangements 4. Executive remuneration arrangements 5. Company performance and the link to remuneration 6. Executive contractual arrangements Additional statutory disclosures 7. 1. INTRODUCTION The remuneration report details the remuneration arrangements for Key Management Personnel (“KMP”) who are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Consolidated Entity. For the purposes of this remuneration report, the term ‘executive’ includes the Chief Executive Officer (“CEO”), executive directors, senior executives, general managers and secretary of the Consolidated Entity. Details of KMP of the Consolidated Entity are set out below: Name Position Appointed Resigned (i) Non-Executive Directors PJ Newton PM Cmrlec AC Ferguson SD Heggen X Penggen Y Zhang Non-Executive Chairman 14 December 2012 Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director 23 July 2013 10 May 2012 25 October 2012 9 February 2012 Alternate for Mr Xie Penggen 3 October 2007 (ii) Executive Directors PG Cook WS Hallam CEO & Executive Director Executive Director 23 July 2004 1 March 2005 (iii) Other Executives (KMPs) - - - - - - - - General Manager - Tin Operations 22 April 2010 3 January 2014 RD Cook AH King PD Hucker MP Poepjes JW Russell General Manager - Tin Operations 24 February 2014 Chief Operating Officer 17 October 2012 Chief Mining Engineer Chief Geologist 8 August 2011 17 October 2012 - - - - FJ Van Maanen CFO & Company Secretary 1 July 2005 There are no other changes of the key management personnel after the reporting date and the date the financial report was authorised for issue. DIRECTOR’S REPORT 21 2. REMUNERATION GOVERNANCE Remuneration and Nomination Committee The remuneration and nomination committee comprises four NEDs. The remuneration and nomination committee is responsible for making recommendations to the Board on the remuneration arrangements for non-executive directors and executives. The remuneration and nomination committee assesses the appropriateness of the nature and amount of remuneration of non-executive directors and executives on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from the retention of a high performing director and executive team. Remuneration approval process The Board approves the remuneration arrangements of the CEO and executives and all awards made under the long-term incentive plan, following recommendations from the remuneration and nomination committee. The Board also sets the aggregate remuneration of non-executive directors which is then subject to shareholder approval. The remuneration and nomination committee approves, having regard to the recommendations made by the CEO, the level of the Consolidated Entity’s short-term incentive pool. Remuneration Strategy The Company’s remuneration strategy is designed to attract, motivate and retain employees and non- executive directors by identifying and rewarding high performers and recognising the contribution of each employee to the continued growth and success of the Consolidated Entity. To this end, the company embodies the following principles in its remuneration framework: • • • retention and motivation of key executives; attraction of quality management to the Company; and performance incentives which allow executives to share the rewards of the success of the Company. Remuneration Structure In accordance with best practice corporate governance, the structure of non-executive director and senior executive remuneration is separate and distinct. Remuneration report at FY13 AGM The FY13 remuneration report received positive shareholder support at the FY13 AGM with a vote of 93% in favour. 3. NON-EXECUTIVE DIRECTOR REMUNERATION ARRANGEMENTS Remuneration Policy The Board seeks to set aggregate remuneration at a level which provides the Company with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. The amount of aggregate remuneration sought to be approved by shareholders and the fee structure is reviewed annually against fees paid to non-executive directors of comparable companies. The Board may consider advice from external consultants, however none were engaged during the year. The board also considers fees paid to non-executive directors of comparable companies when undertaking the annual review process. 22 DIRECTOR’S REPORT The Company’s constitution and the ASX listing rules specify that the non-executive director fee pool shall be determined from time to time by a general meeting. The last determination was at the annual general meeting held on 23 November 2012 when shareholders approved an aggregate fee pool of $300,000 per year. Structure The remuneration of non-executive directors consists of director’s fees. Non-executives are entitled to receive retirement benefits and to participate in any incentive programs. There are currently no specific incentive programs. The non-executive Chairman receives a base fee of $85,000 and each other non-executive director receives a base fee of $60,000 for being a director of the Consolidated Entity. There are no additional fees for serving on any board committees. Non-executive directors have long been encouraged by the Board to hold shares in the Company and align their interests with the Company’s shareholders. The shares are purchased by the directors at the prevailing market share price. The remuneration report for the non-executive directors for the year ending 30 June 2014 and 30 June 2013 is detailed in Table 1 and Table 2 respectively of this report. 4. EXECUTIVE REMUNERATION ARRANGEMENTS Remuneration Policy The Company’s executive remuneration strategy is designed to attract, motivate and retain high performing individuals and align the interests of executives and shareholders. No KMP appointed during the period received a payment as part of their consideration for agreeing to hold the position. Structure In determining the level and make-up of executive remuneration, the remuneration and nomination committee engages external consultants as needed to provide independent advice. Remuneration consists of the following key elements: • • Fixed remuneration (base salary and superannuation); and Variable remuneration (share options and cash bonus). The proportion of fixed remuneration and variable remuneration for each executive for the period ending 30 June 2014 and 30 June 2013 are set out in Table 1 and Table 2. DIRECTOR’S REPORT 23 4. EXECUTIVE REMUNERATION ARRANGEMENTS (CONTINUED) Fixed Remuneration Executive contracts of employment do not include any guaranteed base pay increase. Fixed remuneration is reviewed annually by the remuneration and nomination committee. The process consists of a review of the Company, business unit and individual performance, relevant comparative remuneration internally and externally and, where appropriate, external advice independent of management. Executives are given the opportunity to receive their fixed (primary) remuneration in a variety of forms including cash and fringe benefits such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company. The fixed remuneration component for executives for the period ending 30 June 2014 and 30 June 2013 are set out in Table 1 and Table 2. Variable Remuneration Short Term Incentive (“STI”) – cash bonus The objective of the STI is to link the increase in shareholder value over the year with the remuneration received by the executives charged with achieving that increase. Executives may from time-to-time receive a discretionary cash bonus approved by the Board as a retrospective reward for exceptional performance in a specific matter of importance. The total potential STI cash bonus available is set at a level so as to provide sufficient incentive to the executives to achieve the performance goals and such that the cost to the Consolidated Entity is reasonable in the circumstances. Annual STI payments granted to each executive depends on their performance over the year and are based on recommendations from the CEO following collaboration with the Board. Typically included are measures such as contribution to strategic initiatives, risk management and leadership/team contribution. The aggregate of annual STI payments available for executives across the Consolidated Entity is subject to the approval of the Board. The Board has no pre-determined performance criteria against which the amount of a STI is assessed and there are no pre-determined maximum possible values of award under the STI scheme. In assessing the value of an STI award to be granted the Board will give consideration to the contribution of the action being rewarded to the success of the Consolidated Entity. Discretionary STI cash bonuses totalling $346,041 were awarded in respect of the 2014 financial year and no bonuses were paid in respect of the 2013 financial year. No discretionary STI cash bonuses relating to the 2014 or 2013 financial years will become payable in future financial years. Long Term Incentive (“LTI”) – Share options The objective of the LTI plan is to reward executives in a manner that aligns remuneration with the creation of shareholder wealth. As such LTI’s are made to executives who are able to influence the generation of shareholder wealth and thus have an impact on the Consolidated Entity’s performance. LTI awards to executives are made under the Metals X Limited Long Term Incentive Plan and are delivered in the form of share options. The number of options issued is determined by the policy set by the remuneration and nomination committee and is based on each executive’s role and position with the Consolidated Entity. The share options will vest after one year or as determined by the Board of Directors and Executives are able to exercise the share options for up to three years after vesting before the options lapse. Where a participant ceases employment prior to the vesting of their share options, the share options are forfeited. Where a participant ceases employment after the vesting of their share options, the share options automatically lapse after six months of ceasing employment. Table 3 provides details of LTI options granted and the value of options granted, exercised and lapsed during the year. 24 DIRECTOR’S REPORT Hedging of equity awards The Company prohibits executives from entering into arrangements to protect the value of unvested LTI awards. The prohibition includes entering into contracts to hedge their exposure to options awarded as part of their remuneration package. 5. COMPANY PERFORMANCE AND THE LINK TO REMUNERATION STI remuneration is linked to the performance of the Company. In the current financial year cash bonuses were awarded to executives based on the Company’s performance in the preceding financial year. LTI remuneration is not linked to the performance of the Company but rather on the ability to attract and retain executives of the highest calibre. The overall remuneration policy framework however is structured in an endeavour to advance/create shareholder wealth. The Metals X Limited Long Term Incentive Plan has no direct performance requirements but has specified time restrictions on the exercise of options. The granting of options is in substance a performance incentive which allows executives to share the rewards of the success of the Company. 30 Jun 10 30 Jun 11 30 Jun 12 30 Jun 13 30 Jun 14 Closing share price Profit/(loss) per share (cents) Net tangible assets per share Total Shareholder Return $0.10 0.92 $0.15 -13% $0.26 4.48 $0.19 166% $0.15 -3.31 $0.16 -43% $0.10 0.56 $0.17 -32% $0.26 2.26 $0.19 165% 6. EXECUTIVE CONTRACTUAL ARRANGEMENTS Remuneration arrangements for KMP are formalised in employment agreements. Details of these contracts are provided below: Chief Executive Officer The CEO, Mr Cook is employed under an annual salary employment contract. The current employment contract commenced on 1 January 2013. Under the terms of the present contract: • Mr Cook receives a fixed remuneration of $546,250 (including superannuation) per annum. • Mr Cook may resign from his position and thus terminate this contract by giving three months written notice. On resignation any unvested options will be forfeited. • • The Company may terminate this employment agreement by providing three months written notice or providing payment in lieu of notice period (based on the fixed component of Mr Cook’s remuneration). On termination on notice by the Company, any LTI options that have vested or that will vest during the notice period will be released. LTI options that have not yet vested will be forfeited. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs the CEO is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination with cause by the Company, any LTI options that have vested will be released. LTI options that have not yet vested will be forfeited. DIRECTOR’S REPORT 25 6. EXECUTIVE CONTRACTUAL ARRANGEMENTS (CONTINUED) Other executive directors Mr Hallam is employed under an annual salary employment contract and receives a fixed remuneration of $458,850 (including superannuation) per annum. The other terms of Executive Directors employment contracts are: • • • Executive Directors may resign from their position and thus terminate their contract by giving three months written notice. On resignation any unvested options will be forfeited. The Company may terminate the employment agreement by providing three months written notice or providing payment in lieu of notice period (based on the fixed component of the executive director’s remuneration). On termination on notice by the Company, any LTI options that have vested or that will vest during the notice period will be released. LTI options that have not yet vested will be forfeited. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs the executive director is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination with cause by the Company, any LTI options that have vested will be released. LTI options that have not yet vested will be forfeited. Other KMP All other executives have standard employment contracts. The other terms of the employment contracts are: • • • Executives may resign from their position and thus terminate their contract by giving one to three months written notice. On resignation any unvested options will be forfeited. The Company may terminate the employment agreement by providing one to three months written notice or providing payment in lieu of notice period (based on the fixed component of the executive’s remuneration). On termination on notice by the Company, any LTI options that have vested or that will vest during the notice period will be released. LTI options that have not yet vested will be forfeited. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs the executive is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination with cause by the Company, any LTI options that have vested will be released. LTI options that have not yet vested will be forfeited. 26 DIRECTOR’S REPORT Remuneration of key management personnel of the Consolidated Entity Table 1: Remuneration for the year ended 30 June 2014 Short Term Post employ- ment Long term benefits Share- based Payment Salary and Fees Cash Bonus Non monetary benefits Superan- nuation Long service leave Options Total % Perfor- mance related % of remuner- ation that consists of options Non-executive Directors PJ Newton PM Cmrlec AC Ferguson SD Heggen X Penggen Y Zhang (Alt Director) Executive Directors PG Cook * WS Hallam * 85,000 56,507 60,000 60,000 - - 261,507 - - - - - - - - - - - - - - 7,863 5,227 - 5,550 - - 18,640 - - - - - - - 454,352 100,000 6,042 22,535 16,430 480,484 84,000 5,729 21,968 25,378 Other key management personnel RD Cook ** PD Hucker AH King ** MP Poepjes JW Russell 154,579 4,471 - 13,466 - 275,438 50,000 2,787 25,000 4,982 108,308 1,570 - 10,164 - 235,000 25,000 2,787 24,050 3,019 229,327 25,000 2,787 23,125 7,876 8,741 - - - - - - - - - - - - - - 92,863 61,734 60,000 65,550 - - 280,147 - - - - - - 599,359 16.68 617,559 13.60 172,516 2.59 358,207 13.96 120,042 289,856 288,115 1.31 8.62 8.68 345,835 16.19 - - - - - - - - - - - - - - FJ Van Maanen 246,822 56,000 6,261 28,011 Totals * 2,184,310 346,041 26,393 168,319 66,426 - 2,791,489 2,445,817 346,041 26,393 186,959 66,426 - 3,071,636 WS Hallam and PG Cook were Directors of Aziana during the period and Metals X was paid for Directors fees associated Aziana. These amounts represent the net employment expense to Metals X. ** RD Cook resigned on 3 January and AH King was appointed on 24 February 2014 DIRECTOR’S REPORT 27 EXECUTIVE CONTRACTUAL ARRANGEMENTS (CONTINUED) 6. Table 2: Remuneration for the year ended 30 June 2013 Short Term Post employ- ment Long term benefits Share- based Payment Salary and Fees Cash Bonus Non monetary benefits Superan- nuation Long service leave Options Total % Perfor- mance related % of remuner- ation that consists of options Non-executive Directors PJ Newton AC Ferguson SD Heggen X Penggen Y Zhang (Alt Director) Executive Directors PG Cook ** WS Hallam ** SJ Huffadine * DP Will * 46,400 60,000 41,129 - - 147,529 451,750 376,800 227,787 370,893 Other key management personnel 153,287 188,622 206,422 212,500 202,952 2,391,013 2,538,542 RD Cook PD Hucker MP Poepjes JW Russell FJ Van Maanen *** Totals * ** - - - - - - - - - - - - - - - - - - - - - - - 4,176 - 3,702 - - 7,878 - - - - - - 1,382 14,410 8,638 4,877 19,960 29,922 1,486 13,388 4,747 21,600 - - - - - - 13,482 2,891 16,976 1,651 18,578 2,203 19,125 2,449 3,234 18,356 28,220 - - - - - - - - - - - - - - - 50,576 60,000 44,831 - - 155,407 476,180 431,559 242,661 397,240 169,660 207,249 227,203 234,074 252,762 - - - - - - - - - - - - - - 15,726 155,875 75,974 - 2,638,588 15,726 163,753 75,974 - 2,793,995 - - - - - - - - - - - - - - DP Will and SJ Huffadine resigned on 14 December 2012 and 30 April 2013 respectively. WS Hallam and PG Cook were Directors of Westgold and Aziana during the period and Metals X was paid for Directors fees associated with Westgold and Aziana. These amounts represent the net employment expense to Metals X. *** FJ Van Maanen was the Company Secretary of Aziana and during the period Metals X was paid for Company Secretarial fees associated with Aziana. 28 DIRECTOR’S REPORT 7. ADDITIONAL STATUTORY DISCLOSURES This section sets out the additional disclosures required under the Corporations Act 2001. Share options do not carry any voting rights and can be exercised once the vesting conditions have been met until their expiry date. No options were awarded or vested during the year and all options awarded in prior periods had fully vested at 30 June 2013. Table 3: Value of options awarded, exercised and lapsed during the yearˆ Value of options granted during the year $ Value of options exercised during the year $ Value of options lapsed during the year $ Remuneration consisting of share options for the year % PM Cmrlec JW Russell FJ Van Maanen - - - 37,398 24,932 19,945 - - - - - - ^ For details on valuation of the options, including models and assumptions used, please refer to note 30. There were no alterations to the terms and conditions of options granted as remuneration since their grant date. The maximum grant, which will be payable is equal to the number of options granted multiplied by the fair value at the grant date. The minimum grant payable if the options lapse is zero. Table 4: Share holdings of key management personnel (including nominees) Ordinary shares held in Metals X Limited (number) 30 June 2014 Directors PJ Newton PG Cook WS Hallam PM Cmrlec AC Ferguson SD Heggen X Penggen Y Zhang (Alternate Director) Executives RD Cook * PD Hucker AH King MP Poepjes JW Russell FJ Van Maanen Total Balance held at 1 July 2013 Granted as remuneration On exercise of options ^ Net change other ^^ Balance held at 30 June 2014 54,100,000 70,316,705 6,350,000 - - 20,000 176,000,000 - - 77,500 - - - 2,070,000 308,934,205 - - - - - - - - - - - - - - - - - - - - - 54,100,000 70,316,705 6,350,000 750,000 (392,150) 357,850 - - - - - - - - - - - - - - 70,000 - - 20,000 176,000,000 - - 77,500 70,000 - 400,000 500,000 (255,186) 144,814 (500,000) 2,070,000 1,650,000 (1,077,336) 309,506,869 * ^ Mr RD Cook resigned on 3 January 2014 and is no longer a KMP. All options were exercised at $0.13 per option. ^^ Represents acquisitions and disposal of shares on market. DIRECTOR’S REPORT 29 7. ADDITIONAL STATUTORY DISCLOSURES (CONTINUED) Table 5: Option holdings of key management personnel (including nominees) 30 June 2014 Directors PJ Newton PG Cook Balance at beginning of period 1 July 2013 - - WS Hallam 1,250,000 PM Cmrlec 750,000 AC Ferguson SD Heggen X Penggen Y Zhang (Alternate Director) Executives RD Cook * - - - - - PD Hucker 1,100,000 AH King - MP Poepjes 600,000 JW Russell 1,500,000 FJ Van Maanen 1,550,000 Total 6,750,000 All options are exercisable once vested. Granted as remuneration Net change other ^ Options exercised Balance at end of period 30 June 2014 Not vested and not exercisable Vested and exercisable - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,250,000 (750,000) - - - - - - - - - - - - - - 1,100,000 - 600,000 (400,000) 1,100,000 (550,000) (500,000) 500,000 (550,000) (1,650,000) 4,550,000 - - - - - - - - - - - - - - - - - 1,250,000 - - - - - - 1,100,000 - 600,000 1,100,000 500,000 4,550,000 * RD Cook resigned on 3 January 2014 and is no longer a KMP. ^ Options lapsed during the period and forfeited. Other transactions and balances with Key Management Personnel PG Cook and WS Hallam were Directors of Westgold in 2013, which was charged $15,260 for director’s fees. PG Cook and WS Hallam were Directors of Aziana. FJ Van Maanen was the Company Secretary of Aziana in 2013. The Consolidated Entity provided accounting, secretarial and administrative services at cost to Aziana. In the current period $164,572 (2013: $86,945) has been charged to Aziana for these company secretarial and director’s fees. End of Audited Remuneration Report. 30 DIRECTOR’S REPORT AUDITOR’S INDEPENDENCE AND NON-AUDIT SERVICES AUDITOR INDEPENDENCE The Directors’ received the Independence Declaration, as set out on page 32, from Ernst & Young. NON-AUDIT SERVICES The following non-audit services were provided by the entity’s auditor, Ernst & Young. The directors are satisfied that the provision of non-audit is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Ernst & Young received or are due to receive the following amounts for the provision of non-audit services (refer to note 34): Tax and stamp duty compliance services 170,580 $ Signed in accordance with a resolution of the Directors. PG Cook CEO & Executive Director Perth, 26 August 2014 DIRECTORS’ REPORT 31 AUDITOR’S INDEPENDENCE DECLARATION 32 AUDITOR’S INDEPENDENCE DECLARATION CORPORATE GOVERNANCE STATEMENT The Board of Directors of Metals X Limited is responsible for the corporate governance of the Consolidated Entity. The Board guides and monitors the business and affairs of Metals X Limited on behalf of the shareholders by whom they are elected and to whom they are accountable. This statement reports on Metals X Limited’s key governance principles and practices. 1. COMPLIANCE WITH BEST PRACTICE RECOMMENDATIONS The Company, as a listed entity, must comply with the Corporations Act 2001 and the Australian Securities Exchange (ASX) Listing Rules. The ASX Listing Rules require the Company to report on the extent to which it has followed the Corporate Governance Recommendations published by the ASX Corporate Governance Council (ASXCGC). Where a recommendation has not been followed, that fact is disclosed, together with the reasons for the departure. For further information on corporate governance policies adopted by the Company, refer to the corporate governance section of our website: www.metalsx.com.au The table below summaries the Company’s compliance with the Corporate Governance Council’s Recommendations: Principle # ASX Corporate Governance Council Recommendations Reference Comply Principle 1 Lay solid foundations for management and oversight Establish the functions reserved to the board and those delegated to senior executives and disclose those functions. 2(a) 1.1 1.2 1.3 Disclose the process for evaluating the performance of senior executives. Provide the information indicated in the Guide to reporting on principle 1. Principle 2 Structure the Board to add value 2.1 2.2 2.3 2.4 2.5 2.6 A majority of the board should be independent directors. The chair should be an independent director. The roles of chair and chief executive officer should not be exercised by the same individual. The board should establish a nomination committee. Disclose the process for evaluating the performance of the board, its committees and individual directors. Provide the information indicated in the Guide to reporting on principle 2. Principle 3 Promote ethical and responsible decision-making Establish a code of conduct and disclose the code or a summary as to: 3.1 3.2 • • • the practices necessary to maintain confidence in the company’s integrity; the practices necessary to take into account the company’s legal obligations and the reasonable expectations of its stakeholders; and 6(a) Yes the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. Establish a policy concerning diversity and disclose the policy or a summary. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity and for the board to assess annually both the objectives and progress in achieving them. 6(c) Yes CORPORATE GOVERNANCE STATEMENT 33 2(g), 3(b), Remu- neration Report 2(a), 2(g), 3(b), Remuneration Report 2(d) 2(c), 2(d) 2(b), 2(c) 3(b) 2(g) 2(b), 2(c), 2(d), 2(g) Yes Yes Yes No Yes Yes Yes Yes Yes 1. COMPLIANCE WITH BEST PRACTICE RECOMMENDATIONS (CONTINUED) Principle # ASX Corporate Governance Council Recommendations Reference Comply 3.3 3.4 3.5 Disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them. Disclose in each annual report the proportion of women employees in the whole organisation, women in senior executive positions and women on the board. 6(c) 6(c) Provide the information indicated in the Guide to reporting on principle 3. 6(a), 6(c) Principle 4 Safeguard integrity in financial reporting 4.1 The board should establish an audit committee. 3(a) Yes Yes Yes Yes The audit committee should be structured so that it: • • • • consists only of non-executive directors; consists of a majority of independent directors; is chaired by an independent chair, who is not chair of the board; and has at least three members. The audit committee should have a formal charter. Provide the information indicated in the Guide to reporting on principle 4. 4.2 4.3 4.4 Principle 5 Make timely and balanced disclosure 5.1 5.2 Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at senior executive level for that compliance and disclose those policies or a summary of those policies. Provide the information indicated in the Guide to reporting on principle 5. Principle 6 Respect the rights of shareholders 6.1 6.2 Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose the policy or a summary of that policy. Provide the information indicated in the Guide to reporting on principle 6. Principle 7 Recognise and manage risk 3(a) Yes 3(a) 3(a) 4(a), 4(b) 4(a), 4(b) 4(a), 4(b) 4(a), 4(b) Yes Yes Yes Yes Yes Yes Yes 7.1 7.2 7.3 7.4 Establish policies for the oversight and management of material business risks and disclose a summary of those policies. 5(a) The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. The board should disclose whether it had received assurance from the chief executive officer and the chief financial officer that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Provide the information indicated in the Guide to reporting on principle 7. 5(a), 5(b), 5(d) Yes 5(c) 5(a), 5(b), 5(c), 5(d) Yes Yes 34 CORPORATE GOVERNANCE STATEMENT Principle # ASX Corporate Governance Council Recommendations Reference Comply Principle 8 Remunerate fairly and responsibly 8.1 8.2 8.3 8.4 The board should establish a remuneration committee. The remuneration committee should be structured so that it: • • • consists of a majority of independent directors; is chaired by an independent chair; and has at least three members. Clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives. Provide the information indicated in the Guide to reporting on principle 8. 3(b) 3(b) 3(b) 3(b) Yes Yes Yes Yes 2. THE BOARD OF DIRECTORS 2(A) ROLES AND RESPONSIBILITIES OF THE BOARD The Board is accountable to the shareholders and investors for the overall performance of the Company and takes responsibility for monitoring the Company’s business and affairs and setting its strategic direction, establishing and overseeing the Company’s financial position. The Board is responsible for: • Appointing, evaluating, rewarding and if necessary the removal of the Chief Executive Officer (“CEO”) and senior management; • Development of corporate objectives and strategy with management and approving plans, new investments, major capital and operating expenditures and major funding activities proposed by management; • Monitoring actual performance against defined performance expectations and reviewing operating information to understand at all times the state of the health of the Company; • Overseeing the management of business risks, safety and occupational health, environmental issues and community development; • • • • • Satisfying itself that the financial statements of the Company fairly and accurately set out the financial position and financial performance of the Company for the period under review; Satisfying itself that there are appropriate reporting systems and controls in place to assure the board that proper operational, financial, compliance, risk management and internal control process are in place and functioning appropriately. Approving and monitoring financial and other reporting; Assuring itself that appropriate audit arrangements are in place; Ensuring that the Company acts legally and responsibly on all matters and assuring itself that the Company has adopted a Code of Conduct and that the Company practice is consistent with that Code; and other policies; and • Reporting to and advising shareholders. Other than as specifically reserved to the Board, responsibility for the day-to-day management of the Company’s business activities is delegated to the CEO and Executive Management. CORPORATE GOVERNANCE STATEMENT 35 2. THE BOARD OF DIRECTORS (CONTINUED) 2(B) BOARD COMPOSITION The Directors determine the composition of the Board employing the following principles: • • • • • the Board, in accordance with the Company’s constitution must comprise a minimum of three Directors; the roles of the Chairman of the Board and of the CEO should be exercised by different individuals; the majority of the Board should comprise Directors who are non-executive; the Board should represent a broad range of qualifications, experience and expertise considered of benefit to the Company; and the Board must be structured in such a way that it has a proper understanding of, and competency in, the current and emerging issues facing the Company, and can effectively review management’s decisions. The Board is currently comprised of five non-executive Directors and two executive Directors. Details of the members of the Board, their experience, expertise, qualifications, terms of office and independent status are set out in the Directors’ Report of the Annual Report under the heading “Directors”. The Company’s constitution requires one-third of the Directors (or the next lowest whole number) to retire by rotation at each Annual General Meeting (AGM). The Directors to retire at each AGM are those who have been longest in office since their last election. Where Directors have served for equal periods, they may agree amongst themselves or determine by lot who will retire. A Director must retire in any event at the third AGM since he or she was last elected or re-elected. Retiring Directors may offer themselves for re- election. A Director appointed as an additional or casual Director by the Board will hold office until the next AGM when they may be re-elected. The CEO is not subject to retirement by rotation and, along with any Director appointed as an additional or casual Director, is not to be taken into account in determining the number of Directors required to retire by rotation. 2(C) CHAIRMAN AND CEO The Chairman is responsible for: • • • • • • leadership of the Board; the efficient organisation and conduct of the Board’s functions; the promotion of constructive and respectful relations between Board members and between the Board and management; contributing to the briefing of Directors in relation to issues arising at Board meetings; facilitating the effective contribution of all Board members; and committing the time necessary to effectively discharge the role of the Chairman. The CEO is responsible for: • • implementing the Company’s strategies and policies; and the day-to-day management of the Consolidated Entity’s business activities. The Board specifies that the roles of the Chairman and the CEO are separate roles to be undertaken by separate people. 36 CORPORATE GOVERNANCE STATEMENT 2(D) INDEPENDENT DIRECTORS The Company recognises that independent directors are important in assuring shareholders that the Board is properly fulfilling its role and is diligent in holding senior management accountable for its performance. The Board assesses each of the directors against specific criteria to decide whether they are in a position to exercise independent judgment. Directors of Metals X Limited are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgment. In making this assessment, the Board considers all relevant facts and circumstances. Relationships that the Board will take into consideration when assessing independence are whether a Director: • • is a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company; is employed, or has previously been employed in an executive capacity by the Company or another group member, and there has not been a period of at least three years between ceasing such employment and serving on the Board; • has within the last three years been a principal of a material professional advisor or a material consultant to the Company or another group member, or an employee materially associated with the service provided; • is a material supplier or customer of the Company or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; or • has a material contractual relationship with the Company or another group member other than as a Director. The Company does not comply with ASX Recommendation 2.1, there is a majority of non-executive Directors but there is not a majority of independent Directors on the Board. In accordance with the definition of independence above, only three of the Directors of the Company are considered to be independent. The Board believes that the Company is not of sufficient size to warrant the inclusion of more independent non-executive Directors in order to meet the ASX recommendation of maintaining a majority of independent non-executive Directors. The Company maintains a mix of Directors from different backgrounds with complementary skills and experience. In recognition of the importance of independent views and the Board’s role in supervising the activities of management the Chairman is a non-executive director. 2(E) AVOIDANCE OF CONFLICTS OF INTEREST BY A DIRECTOR In order to ensure that any interests of a Director in a particular matter to be considered by the Board are known by each Director, each Director is required by the Company to disclose any relationships, duties or interests held that may give rise to a potential conflict. Directors are required to adhere strictly to constraints on their participation and voting in relation to any matters in which they may have an interest. 2(F) BOARD ACCESS TO INFORMATION AND INDEPENDENT ADVICE Directors are able to access members of the management team at any time to request relevant information. There are procedures in place, agreed by the board, to enable Directors, in furtherance of their duties, to seek independent professional advice at the company’s expense. CORPORATE GOVERNANCE STATEMENT 37 2. THE BOARD OF DIRECTORS (CONTINUED) 2(G) REVIEW OF BOARD PERFORMANCE The performance of the board and each of its committees is reviewed regularly by the Chairman. The Chairman conducts performance evaluations which involve an assessment of each board member’s performance against specific and measurable qualitative and quantitative performance criteria. The performance criteria against which directors and executives are assessed is aligned with the financial and non-financial objectives of Metals X Limited. Directors whose performance is consistently unsatisfactory may be asked to retire. The performance of each committee is against the requirements of their respective charters. 3. BOARD COMMITTEES To assist the Board in fulfilling its duties and responsibilities, it has established the following committees: • Audit Committee; and • Remuneration Committee. 3(A) AUDIT COMMITTEE The Board has established an Audit Committee that has four members, comprising four non-executive directors. The Audit Committee is governed by its charter, as approved by the Board. It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators. The Board has delegated responsibility for establishing and maintaining a framework of internal control and ethical standards to the Audit Committee. The Committee also provides the Board with additional assurance regarding the reliability of financial information for inclusion in financial report. The Audit Committee’s main responsibilities include: • • • • approval of the scope and plan for the external audit; review of the independence and performance of the external auditor; review of significant accounting policies and practices; and review and recommendation to the Board for the adoption of the Consolidated Entity’s half year and annual financial statements. The Audit Committee is comprised of: Name SD Heggen (Chairman) PJ Newton AC Ferguson PM Cmrlec Position Independent Non-executive Director Independent Non-executive Director Non-executive Director Independent Non-executive Director The qualifications of the committee are set out in the Directors’ Report of the Annual Report under the heading “Directors”. The number of times the Audit Committee has formerly met and the number of meetings attended by directors during the financial year are reported in Directors’ Report of the Annual Report under the heading “Directors’ Meetings”. 38 CORPORATE GOVERNANCE STATEMENT External Auditors The Company’s policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually and applications for tender of external audit services are requested as deemed appropriate, taking into consideration assessment of performance, existing value and tender costs. It is Ernst & Young’s policy to rotate engagement partners on listed companies at least every five years. An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in the notes to the financial statements in the Annual Report. There is no indemnity provided by the company to the auditor in respect of any potential liability to third parties. The external auditor is requested to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and preparation and content of the audit report. The directors are satisfied that the provision of non-audit services during the year by the auditors is compatible with the general standard of independence for auditors imposed by the Corporations Act. The directors are satisfied that the provision of the non-audit services did not compromise the auditor’s independence requirements of the Corporations Act because the services were provided by persons who were not involved in the audit and the decision as to whether or not to accept the tax planning advice was made by management. 3(B) REMUNERATION AND NOMINATION COMMITTEE The Board is responsible for determining and reviewing compensation arrangements for the directors themselves and the CEO and executive team. The Board has established a Remuneration and Nomination Committee, comprising four non-executive directors. The Remuneration and Nomination Committee is governed by its charter, as approved by the Board. Name PJ Newton (Chairman) SD Heggen AC Ferguson PM Cmrlec Position Chairman & Independent Non-executive Director Independent Non-executive Director Non-executive Director Independent Non-executive Director The main functions of the Remuneration and Nomination Committee are: • • Evaluating the necessary and desirable competencies for members of the Board. Assessing skills, experience and expertise and making recommendations to the Board on candidates for appointment and re-appointment as Directors on the Board. • Reviewing and making recommendations on processes for evaluating the performance of members of the Board and its Committees and for assessing and enhancing Director competencies. • Reviewing and monitoring progress of succession plans and making recommendations to the Board. • Reviewing and making recommendations to the Board on the remuneration of the CEO. • Reviewing and making recommendations to the Board, on advice from the CEO, on remuneration of senior executives of the Company (other than the CEO) and in respect or remuneration matters generally. • • Evaluating and making recommendations to the Board on the Company’s recruitment, retention and termination policies and procedures. Assessing and making recommendations to the Board on remuneration policies and practices including superannuation arrangements, incentive schemes and performance target for senior executive and other employees of the Company. • Reviewing and assessing annually the performance of the Committee and the adequacy of its charter. CORPORATE GOVERNANCE STATEMENT 39 3. BOARD COMMITTEES (CONTINUED) 3(B) REMUNERATION AND NOMINATION COMMITTEE (CONTINUED) The remuneration received by directors and executives in the current period is contained in the “Remuneration Report” within the Directors’ Report of the Annual Report. The number of times the Remuneration and Nominations Committee has formerly met and the number of meetings attended by directors during the financial year are reported in the Directors’ Report of the Annual Report under the heading “Directors’ Meetings”. 4. TIMELY AND BALANCED DISCLOSURE 4(A) SHAREHOLDER COMMUNICATION The Company believes that all shareholders should have equal and timely access to material information about the Company including its financial situation, performance, ownership and governance. The Company’s “ASX Disclosure Policy” encourages effective communication with its shareholders by requiring that Company announcements: • • be factual and subject to internal vetting and authorisation before issue; be made in a timely manner; • not omit material information; • • • be expressed in a clear and objective manner to allow investors to assess the impact of the information when making investment decisions; be in compliance with ASX Listing Rules continuous disclosure requirements; and be placed on the Company’s website promptly following release. Shareholders are encouraged to participate in general meetings. Copies of addresses by the Chairman or CEO are disclosed to the market and posted on the Company’s website. The Company’s external auditor attends the Company’s annual general meeting to answer shareholder questions about the conduct of the audit, the preparation and content of the audit report, the accounting policies adopted by the Company and the independence of the auditor in relation to the conduct of the audit. 4(B) CONTINUOUS DISCLOSURE POLICY The Company is committed to ensuring that shareholders and the market are provided with full and timely information and that all stakeholders have equal opportunities to receive externally available information issued by the Company. The Company’s “ASX Disclosure Policy” described in 5(a) reinforces the Company’s commitment to continuous disclosure and outline management’s accountabilities and the processes to be followed for ensuring compliance. The policy also contains guidelines on information that may be price sensitive. The Company Secretary has been nominated as the person responsible for communications with the ASX. This role includes responsibility for ensuring compliance with the continuous disclosure requirements with the ASX Listing Rules and overseeing and coordinating information disclosure to the ASX. 40 CORPORATE GOVERNANCE STATEMENT 5. RECOGNISING AND MANAGING RISK The Board is responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control systems. The Company’s policies are designed to ensure strategic, operational, legal, reputation and financial risks are identified, assessed, effectively and efficiently managed and monitored to enable achievement of the Company’s business objectives. A written policy in relation to risk oversight and management has been established (“Risk Management and Internal Control Policy”). Considerable importance is placed on maintaining a strong control environment. There is an organisation structure with clearly drawn responsibilities. 5(A) BOARD OVERSIGHT OF THE RISK MANAGEMENT SYSTEM The Board is responsible for approving and overseeing the risk management system. The Board reviews, at least annually, the effectiveness of the implementation of the risk management controls and procedures. The principle aim of the system of internal control is the management of business risks, with a view to enhancing the value of shareholders’ investments and safeguarding assets. Although no system of internal control can provide absolute assurance that the business risks will be fully mitigated, the internal control systems have been designed to meet the Company’s specific needs and the risks to which it is exposed. Annually, the Board is responsible for identifying the risks facing the Company, assessing the risks and ensuring that there are controls for these risks, which are to be designed to ensure that any identified risk is reduced to an acceptable level. The Board is also responsible for identifying and monitoring areas of significant business risk. Internal control measures currently adopted by the Board include: • monthly reporting to the Board in respect of operations and the Company’s financial position, with a comparison of actual results against budget; and • regular reports to the Board by appropriate members of the management team and/or independent advisers, outlining the nature of particular risks and highlighting measures which are either in place or can be adopted to manage or mitigate those risks. 5(B) RISK MANAGEMENT ROLES AND RESPONSIBILITIES The Board is responsible for approving and reviewing the Company’s risk management strategy and policy. Executive management is responsible for implementing the Board approved risk management strategy and developing policies, controls, processes and procedures to identify and manage risks in all of the Company’s activities. The board is responsible for satisfying itself that management has developed and implemented a sound system of risk management and internal control. 5(C) CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER CERTIFICATION The CEO and Chief Financial Officer provide to the Board written certification that in all material respects: • • • the Company’s financial statements present a true and fair view of the Company’s financial condition and operational results and are in accordance with relevant accounting standards; the statement given to the Board on the integrity of the Company’s financial statements is founded on a sound system of risk management and internal compliance and controls which implements the policies adopted by the Board; and the Company’s risk management an internal compliance and control system is operating efficiently and effectively in all material respects. CORPORATE GOVERNANCE STATEMENT 41 5. RECOGNISING AND MANAGING RISK (CONTINUED) 5(D) INTERNAL REVIEW AND RISK EVALUATION Assurance is provided to the Board by executive management on the adequacy and effectiveness of management controls for risk on a regular basis. 6. ETHICAL AND RESPONSIBLE DECISION MAKING 6(A) CODE OF ETHICS AND CONDUCT The Board endeavours to ensure that the Directors, officers and employees of the Company act with integrity and observe the highest standards of behaviour and business ethics in relation to their corporate activities. The “Code of Conduct” sets out the principles, practices, and standards of personal behaviour the Company expects people to adopt in their daily business activities. All Directors, officers and employees are required to comply with the Code of Conduct. Senior managers are expected to ensure that employees, contractors, consultants, agents and partners under their supervision are aware of the Company’s expectations as set out in the Code of Conduct. All Directors, officers and employees are expected to: • • • • comply with the law; act in the best interests of the Company; be responsible and accountable for their actions; and observe the ethical principles of fairness, honesty and truthfulness, including prompt disclosure of potential conflicts. 6(B) POLICY CONCERNING TRADING IN COMPANY SECURITIES The Company’s “Securities Trading Policy” applies to all Directors, officers and employees. This policy sets out the restrictions on dealing in securities by people who work for, or are associated with the Company and is intended to assist in maintaining market confidence in the integrity of dealings in the Company’s securities. The policy stipulates that the only appropriate time for a Director, officer or employee to deal in the Company’s securities is when they are not in possession of price sensitive information that is not generally available to the market. As a matter of practice, Company shares may only be dealt with by Directors and officers of the Company under the following guidelines: • no trading is permitted in the period of one month prior to the announcement to the ASX of the Company’s quarterly, half year and full year results; • • guidelines are to be considered complementary to and not replace the various sections of the Corporations Act 2001 dealing with insider trading; and prior approval of the Chairman, or in his absence, the approval of two directors is required prior to any trading being undertaken. 42 CORPORATE GOVERNANCE STATEMENT 6(C) POLICY CONCERNING DIVERSITY The Company encourages diversity in employment throughout the Company and in the composition of the Board, as a mechanism to ensure that the Company is able to draw on a variety of skill, talent and previous experiences in order to maximise the Company’s performance. The Company’s “Diversity Policy” has been implemented to ensure the Company has the benefit of a diverse range of employees with different skills, experience, age, gender, race and cultural backgrounds, and that the Company reports its results on an annual basis in achieving measurable targets which are set by the Board as part of implementation of the Diversity Policy. The table below outlines the diversity objectives established by the Board, the steps taken during the year to achieve these objectives, and the outcomes. Objectives Steps Taken/Outcome Increase the number of women in the workforce, including management and at board level. Review gender pay gaps on an annual basis and implement actions to address any variances. Provide flexible workplace arrangements. Key senior female appointments during the year include: • Metals X appointed 5 females in managerial roles. • As at 30 June 2014, women represented 19% in the Consolidated Entity’s workforce (2013: 20%), 2% in key management positions (2013: 2%) and Nil at board level (2013: Nil). As a part of the annual remuneration review, the Board assesses the performance and salaries of all key management personnel and executive directors. Any gender pay disparities are addressed. During the year Metals X employed 9 employees on flexible work arrangements (2013: 7). Provide career development opportunities for every employee, irrespective of any cultural, gender and other differences. Whilst Metals X places special focus on gender diversity, career development opportunities are equal for all employees. Promote an inclusive culture that treats the workforce with fairness and respect. Employees are encouraged to attend professional development courses/workshops throughout the year. Metals X has set a zero tolerance policy against discrimination of employees at all levels. The Company provides avenues to employees to voice their concerns or report any discrimination. No cases of discrimination were reported during the year (2013: Nil). CORPORATE GOVERNANCE STATEMENT 43 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2014 Revenue Cost of sales Gross profit Other income Other expenses Fair value change in financial instruments Impairment loss on available-for-sale financial assets Share of (loss)/profit of associate Impairment loss on investment in associates Reversal of impairment loss on investment in associates Exploration and evaluation expenditure written off Profit/(loss) before income tax and finance costs Notes 2014 2013 5 7(a) 238,599,832 (186,298,890) 68,716,372 (59,228,471) 6 7(b) 7(c) 16 18 18 18 21 52,300,942 4,885,754 (9,151,386) (70,073) (1,622,700) - - - (6,974,352) 9,487,901 6,801,736 (9,931,664) (378,916) (6,608,070) (1,559,556) (1,834,473) 2,905,137 (484,422) 39,368,185 (1,602,327) Finance costs 7(d) (1,916,448) (357,129) Profit/(loss) before income tax Income tax benefit Net profit after tax Other comprehensive income Items that may be reclassified subsequently to profit or loss Share of change in equity of associate Reclassification of cumulative fair value changes in available-for-sale financial assets previously recognised in equity to the profit and loss Income tax effect Other comprehensive (loss)/profit for the period, net of tax Total comprehensive profit for the period Earnings per share for profit attributable to the ordinary equity holders of the company - basic for profit for the year (cents) - diluted for profit for the year (cents) 37,451,737 (1,959,456) - 37,451,737 10,631,770 8,672,314 - - - - 37,451,737 (505,153) (107,369) - (612,522) 8,059,792 2.26 2.26 0.56 0.56 8 9 9 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2014 44 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2014 Notes 2014 2013 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories Other assets Other financial assets Total current assets NON-CURRENT ASSETS Available-for-sale financial assets Derivative financial instruments Investment in associates Property, plant and equipment Mine properties and development costs Exploration and evaluation expenditure Total non-current assets TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Interest bearing loans and borrowings Provisions Total current liabilities NON-CURRENT LIABILITIES Provisions Interest bearing loans and borrowings Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Issued capital Accumulated losses Option premium reserve Other reserves TOTAL EQUITY 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 29 57,108,871 19,297,623 33,248,694 812,095 6,481,192 116,948,475 595,581 - - 63,428,294 155,075,197 95,114,871 314,213,944 431,162,419 61,453,120 12,441,035 14,642,803 472,040 6,885,885 95,894,883 2,650,277 70,073 - 12,567,716 100,174,023 81,867,452 197,329,541 293,224,424 33,064,474 116,865 3,447,676 36,629,015 11,108,270 67,900 1,286,316 12,462,486 82,818,109 56,122 82,874,231 119,503,246 311,659,173 6,871,662 119,913 6,991,575 19,454,061 273,770,363 331,399,336 (39,479,827) 19,739,664 - 311,659,173 330,962,263 (76,931,564) 19,739,664 - 273,770,363 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2014 45 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2014 OPERATING ACTIVITIES Receipts from customers Interest received Other income Payments to suppliers and employees Transaction cost relating to business combination Interest paid Net cash flows from operating activities INVESTING ACTIVITIES Payments for property, plant and equipment Payments for mine properties and development Payments for exploration and evaluation Payments for available-for-sale financial assets Proceeds from sale of property, plant and equipment - other Proceeds from sales of available-for-sale financial assets Net cash (outflow)/inflow on acquisition of subsidiary Net cash flows (used in)/from investing activities FINANCING ACTIVITIES Payment of finance lease liabilities Proceeds from share issue Transaction costs on issue of shares Proceeds from/(payments for) performance bond facility Net cash flows from/(used in) financing activities Notes 2014 2013 238,134,367 2,498,811 668,871 (165,002,231) (2,884,145) (19,191) 73,396,482 65,329,871 2,680,417 906,204 (58,757,095) - (238,441) 9,920,956 11 (12,195,847) (26,261,405) (10,274,690) - 285,548 - (29,529,600) (77,975,994) (2,130,901) (14,966,404) (2,077,793) (902,101) 815,000 28,649,801 1,126,934 10,514,536 (519,503) 357,500 (7,427) 404,693 235,263 (1,242,712) - (64,865) (646,155) (1,953,732) Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the financial period Cash and cash equivalents at the end of the period (4,344,249) 61,453,120 57,108,871 18,481,760 42,971,360 61,453,120 11 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2014 46 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2014 Issued capital Accumulated losses Option premium reserve Other reserves Total Equity 279,086,186 (85,603,878) 18,728,928 612,522 212,823,758 2013 At 1 July 2012 Profit for the year Other comprehensive income, net of tax Total comprehensive (loss)/profit for the year net of tax Transactions with owners in their capacity as owners Issue of share capital - acquisition of Westgold Resources Limited Issue of options - acquisition of Westgold Resources Limited Share issue costs At 30 June 2013 - - - 8,672,314 - 8,672,314 51,940,942 - - - - - - - 1,010,736 (64,865) 330,962,263 - (76,931,564) - 19,739,664 2014 At 1 July 2013 Profit for the year Other comprehensive income, net of tax Total comprehensive profit for the year net of tax Transactions with owners in their capacity as owners Issue of share capital Exercise of options Share issue costs At 30 June 2014 330,962,263 (76,931,564) 19,739,664 - - - 37,451,737 - 37,451,737 - - - 87,000 357,500 (7,427) 331,399,336 - - - (39,479,827) - - - 19,739,664 - (612,522) 8,672,314 (612,522) (612,522) 8,059,792 - - - - - - - - - - - - 51,940,942 1,010,736 (64,865) 273,770,363 273,770,363 37,451,737 - 37,451,737 87,000 357,500 (7,427) 311,659,173 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2014 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 1. CORPORATE INFORMATION The financial report of Metals X Limited for the year ended 30 June 2014 was authorised for issue in accordance with a resolution of the Directors on 21 August 2014. Metals X Limited (“the Company or the Parent”) is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange. The nature of the operations and principal activities of the Consolidated Entity are described in the Directors’ Report. The address of the registered office is Level 3, 18 – 32 Parliament Place, West Perth, WA 6005. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) BASIS OF PREPARATION The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards and other authorative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared on a historical cost basis, except for derivative financial instruments and available-for-sale investments, which have been measured at fair value. The financial report is presented in Australian dollars. (B) STATEMENT OF COMPLIANCE The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board which include International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Adoption of new accounting standards In the current year, the Consolidated Entity has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for annual reporting periods beginning on 1 July 2013. The adoption of these new and revised Standards and Interpretations did not have any effect on the financial position or performance of the Consolidated Entity. The Australian Standards and Interpretations mandatory for reporting periods beginning on or after 1 July 2013, adopted include the following. Adoption of these Standards and Interpretations did not have any effect on the financial position or the performance of the Consolidated Entity. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 48 Reference Title AASB 10 Consolidated Financial Statements AASB 10 establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG-112 Consolidation - Special Purpose Entities. The new control model broadens the situations when an entity is considered to be controlled by another entity and includes new guidance for applying the model to specific situations, including when acting as a manager may give control, the impact of potential voting rights and when holding less than a majority voting rights may give control. Consequential amendments were also made to this and other standards via AASB 2011-7 and AASB 2012-10. AASB 11 Joint Arrangements AASB 11 replaces AASB 131 Interests in Joint Ventures and UIG-113 Jointly- controlled Entities - Non-monetary Contributions by Ventures. AASB 11 uses the principle of control in AASB 10 to define joint control, and therefore the determination of whether joint control exists may change. In addition it removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, accounting for a joint arrangement is dependent on the nature of the rights and obligations arising from the arrangement. Joint operations that give the venturers a right to the underlying assets and obligations themselves is accounted for by recognising the share of those assets and obligations. Joint ventures that give the venturers a right to the net assets is accounted for using the equity method. Consequential amendments were also made to this and other standards via AASB 2011-7, AASB 2010-10 and amendments to AASB 128. Amendments made by the IASB in May 2014 add guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business*****. AASB 12 Disclosure of Interests in Other Entities AASB 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. New disclosures have been introduced about the judgments made by management to determine whether control exists, and to require summarised information about joint arrangements, associates, structured entities and subsidiaries with non-controlling interests. AASB 13 Fair Value Measurement AASB 13 establishes a single source of guidance for determining the fair value of assets and liabilities. AASB 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. Consequential amendments were also made to other standards via AASB 2011-8. AASB 2012-2 Amendments to Australian Accounting Standards - Disclosures - Offsetting Financial Assets and Financial Liabilities AASB 2012-2 principally amends AASB 7 Financial Instruments: Disclosures to require disclosure of the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognised financial assets and recognised financial liabilities, on the entity’s financial position, when all the offsetting criteria of AASB 132 are not met. AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle AASB 2012-5 makes amendments resulting from the 2009-2011 Annual Improvements Cycle. The standard addresses a range of improvements, including the following: Repeat application of AASB 1 is permitted (AASB 1) Clarification of the comparative information requirements when an entity provides a third balance sheet (AASB 101 Presentation of Financial Statements) AASB 2012-9 Amendment to AASB 1048 arising from the withdrawal of Australian Interpretation 1039 AASB 2012-9 amends AASB 1048 Interpretation of Standards to evidence the withdrawal of Australian Interpretation 1039 Substantive Enactment of Major Tax Bills in Australia. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 49 AASB 1053 Application of Tiers of Australian Accounting Standards This standard establishes a differential financial reporting framework consisting of two tiers of reporting requirements for preparing general purpose financial statements: a. b. Tier 1: Australian Accounting Standards Tier 2: Australian Accounting Standards - Reduced Disclosure Requirements Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. The following entities apply Tier 1 requirements in preparing general purpose financial statements: a. b. For-profit entities in the private sector that have public accountability (as defined in this standard) The Australian Government and State, Territory and Local governments The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: a. b. c. For-profit private sector entities that do not have public accountability All not-for-profit private sector entities Public sector entities other than the Australian Government and State, Territory and Local governments. Consequential amendments to other standards to implement the regime were introduced by AASB 2010-2, 2011-2, 2011-6, 2011-11, 2012-1, 2012-7 and 2012 11. AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements [AASB 124] This amendment deletes from AASB 124 individual key management personnel disclosure requirements for disclosing entities that are not companies. It also removes the individual KMP disclosure requirements for all disclosing entities in relation to equity holdings, loans and other related party transactions. AASB 119 Employee Benefits The revised standard changes the definition of short-term employee benefits. The distinction between short-term and other long-term employee benefits is now based on whether the benefits are expected to be settled wholly within 12 months after the reporting date. Consequential amendments were also made to other standards via AASB 2011-10. The following standards and interpretations have been issued by the AASB but are not yet effective and have not been adopted by the group for the period ending 30 June 2014. The Directors have not yet determined the impact of new and amended accounting standards and interpretations applicable 1 July 2014. Reference Title Summary AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities AASB 2012-3 adds application guidance to AASB 132 Financial Instruments: Presentation to address inconsistencies identified in applying some of the offsetting criteria of AASB 132, including clarifying the meaning of "currently has a legally enforceable right of set-off" and that some gross settlement systems may be considered equivalent to net settlement. Application date of standard* Application date for Group* 1 January 2014 1 July 2014 Interpretation 21 Levies This Interpretation confirms that a liability to pay a levy is only recognised when the activity that triggers the payment occurs. Applying the going concern assumption does not create a constructive obligation. 1 January 2014 1 July 2014 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 50 Application date of standard* Application date for Group* 1 January 2018 1 July 2018 Reference Title Summary AASB 9 Financial Instruments On 24 July 2014 The IASB issued the final version of IFRS 9 which replaces IAS 39 and includes a logical model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018. However, the Standard is available for early application. The own credit changes can be early applied in isolation without otherwise changing the accounting for financial instruments. The final version of IFRS 9 introduces a new expected-loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a more timely basis. The AASB is yet to issue the final version of AASB 9. A revised version of AASB 9 (AASB 2013-9) was issued in December 2013 which included the new hedge accounting requirements, including changes to hedge effectiveness testing, treatment of hedging costs, risk components that can be hedged and disclosures. AASB 9 includes requirements for a simplified approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. a. b. c. a. Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. b. Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. c. Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. d. d. Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows: • The change attributable to changes in credit risk are presented in other comprehensive income (OCI). • The remaining change is presented in profit or loss. AASB 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value. This change in accounting means that gains caused by the deterioration of an entity’s own credit risk on such liabilities are no longer recognised in profit or loss. Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7, AASB 2010-10 and AASB 2014-1 – Part E. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 51 Reference Title Summary AASB 2013-3 AASB 2013-4 AASB 2013-5 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting [AASB 139] Amendments to Australian Accounting Standards – Investment Entities [AASB 1, AASB 3, AASB 7, AASB 10, AASB 12, AASB 107, AASB 112, AASB 124, AASB 127, AASB 132, AASB 134 & AASB 139] AASB 2014-1 Part A - Annual Improvements 2010–2012 Cycle Amendments to Australian Accounting Standards - Part A Annual Improvements to IFRSs 2010– 2012 Cycle AASB 2013-3 amends the disclosure requirements in AASB 136 Impairment of Assets. The amendments include the requirement to disclose additional information about the fair value measurement when the recoverable amount of impaired assets is based on fair value less costs of disposal. Application date of standard* Application date for Group* 1 January 2014 1 July 2014 AASB 2013-4 amends AASB 139 to permit the continuation of hedge accounting in specified circumstances where a derivative, which has been designated as a hedging instrument, is novated from one counterparty to a central counterparty as a consequence of laws or regulations. 1 January 2014 1 July 2014 These amendments define an investment entity and require that, with limited exceptions, an investment entity does not consolidate its subsidiaries or apply AASB 3 Business Combinations when it obtains control of another entity. These amendments require an investment entity to measure unconsolidated subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. These amendments also introduce new disclosure requirements for investment entities to AASB 12 and AASB 127. 1 January 2014 1 July 2014 AASB 2014-1 Part A: This standard sets out amendments to Australian Accounting Standards arising from the issuance by the International Accounting Standards Board (IASB) of International Financial Reporting Standards (IFRSs) Annual Improvements to IFRSs 2010–2012 Cycle and Annual Improvements to IFRSs 2011– 2013 Cycle. Annual Improvements to IFRSs 2010–2012 Cycle addresses the following items: • • • • • ‘vesting conditions’ ‘market condition’ and introduces the definition of AASB 2 - Clarifies the definition of and ‘performance condition’ and ‘service condition’. AASB 3 - Clarifies the classification requirements for contingent consideration in a business combination by removing all references to AASB 137. AASB 8 - Requires entities to disclose factors used to identify the entity’s reportable segments when operating segments have been aggregated. An entity is also required to provide a reconciliation of total reportable segments’ asset to the entity’s total assets. AASB 116 & AASB 138 - Clarifies that the determination of accumulated depreciation does not depend on the selection of the valuation technique and that it is calculated as the difference between the gross and net carrying amounts. AASB 124 - Defines a management entity providing KMP services as a related party of the reporting entity. The from the detailed amendments added an exemption disclosure requirements in paragraph 17 of AASB 124 for KMP services provided by a management entity. Payments made to a management entity in respect of KMP services should be separately disclosed. 1 July 2014 1 July 2014 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 52 Reference Title Summary Annual Improvements to IFRSs 2011–2013 Cycle addresses the following items: AASB 2014-1 Part A -Annual Improvements 2011–2013 Cycle • • Amendments to Australian Accounting Standards - Part A Annual Improvements to IFRSs 2011– 2013 Cycle AASB13 - Clarifies that the portfolio exception in paragraph 52 of AASB 13 applies to all contracts within the scope of AASB 139 or AASB 9, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in AASB 132. AASB140 - Clarifies that judgment is needed to determine whether an acquisition of investment property is solely the acquisition of an investment property or whether it is the acquisition of a group of assets or a business combination in the scope of AASB 3 that includes an investment property. That judgment is based on guidance in AASB 3. The revised AASB 1031 is an interim standard that cross-references to other Standards and the Framework (issued December 2013) that contain guidance on materiality. Application date of standard* Application date for Group* 1 July 2014 1 July 2014 AASB 1031 Materiality AASB 1031 will be withdrawn when references to AASB 1031 in all Standards and Interpretations have been removed. 1 July 2014 1 July 2014 AASB 2013-9 Amendments to IAS 16 and IAS 38***** AASB 2014-1 Part C issued in June 2014 makes amendments to eight Australian Accounting Standards to delete their references to AASB 1031. The amendments are effective from 1 July 2014*. The Standard contains three main parts and makes amendments to a number Standards and Interpretations. Part B makes amendments to particular Australian Accounting Standards to delete references to AASB 1031 and also makes minor editorial amendments to various other standards. Part C makes amendments to a number of Australian Accounting Standards, including incorporating Chapter 6 Hedge Accounting into AASB 9 Financial Instruments. IAS 16 and IAS 38 both establish the principle for the basis of depreciation and amortisation as being the expected pattern of consumption of the future economic benefits of an asset. The IASB has clarified that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38) ^ ^ 1 January 2016 1 July 2016 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 53 Reference Title Summary Application date of standard* Application date for Group* IFRS 15***** Revenue from Contracts with Customers IFRS 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. IFRS 15 supersedes: (a) IAS 11 Construction Contracts (b) IAS 18 Revenue (c) IFRIC 13 Customer Loyalty Programmes (d) IFRIC 15 Agreements for the Construction of Real Estate (e) IFRIC 18 Transfers of Assets from Customers (f) SIC-31 Revenue—Barter Transactions Involving Advertising Services The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: (a) Step 1: Identify the contract(s) with a customer (b) Step 2: Identify the performance obligations in the contract (c) Step 3: Determine the transaction price (d) Step 4: Allocate the transaction price to the performance obligations in the contract (e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation Early application of this standard is permitted. 1 January 2017 1 July 2017 * Designates the beginning of the applicable annual reporting period unless otherwise stated. ***** These IFRS amendments have not yet been adopted by the AASB. In order to claim compliance with IFRS, these amendments should be noted in the financial statements. ^ The application dates of AASB 2013-9 are as follows: Part B - periods beginning on or after 1 January 2014 Application date for the Group: period beginning 1 July 2014 Part C - reporting periods beginning on or after 1 January 2015 Application date for the Group: period beginning 1 July 2015 (C) CHANGES IN ACCOUNTING POLICY The accounting policies used in the preparation of these financial statements are consistent with those used in previous years, except as stated in note 2(b). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 54 (D) BASIS OF CONSOLIDATION The consolidated financial statements comprise the financial statements of the parent entity and its subsidiaries (‘the Consolidated Entity’) as at 30 June each year. Control is achieved when the Consolidated Entity is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Consolidated Entity controls an investee if and only if the Consolidated Entity has: • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) • • Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect its returns When the Consolidated Entity has less than a majority of the voting or similar rights of an investee, the Consolidated Entity considers all relevant facts and circumstances in assessing whether it has power over an investee, including: • The contractual arrangement with the other vote holders of the investee • Rights arising from other contractual arrangements • The Consolidated Entity’s voting rights and potential voting rights The Consolidated Entity re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Consolidated Entity obtains control over the subsidiary and ceases when the Consolidated Entity loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Consolidated Entity gains control until the date the Consolidated Entity ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Consolidated Entity and to the non-controlling interests, even if this results in the non- controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Consolidated Entity’s accounting policies. All intra-Consolidated Entity assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Consolidated Entity are eliminated in full on consolidation. (E) (i) (ii) FOREIGN CURRENCY TRANSLATION Functional and presentation currency Both the functional and presentation currency of the Company and its Australian subsidiaries is Australian dollars (A$). Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange at the reporting date. All exchange differences in the consolidated financial report are taken to the profit or loss. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 55 (F) OPERATING SEGMENTS An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. This includes start up operations which are yet to earn revenues. Management will also consider other factors in determining operating segments such as the existence of a line manager and the level of segment information presented to the board of directors. Operating segments have been identified based on the information provided to the chief operating decision makers – being the executive management team. The Consolidated Entity aggregates two or more operating segments when they have similar economic characteristics. Operating segments that meet the quantitative criteria as prescribed by AASB 8 are reported separately. However, an operating segment that does not meet the quantitative criteria is still reported separately where information about the segment would be useful to users of the financial statements. Information about other business activities and operating segments that are below the quantitative criteria are combined and disclosed in a separate category for “all other segments”. (G) CASH AND CASH EQUIVALENTS Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short-term deposits that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the Statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Bank overdrafts are included within interest bearing loans and borrowings in the current liabilities on the statement of financial position. (H) TRADE AND OTHER RECEIVABLES Trade and other receivables, which generally have 30-60 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less an allowance for impairment. Collectibility of trade and other receivables is reviewed on an ongoing basis. Individual debts that are known to be uncollectible are written off when identified. An impairment allowance is recognised when there is objective evidence that the Consolidated Entity will not be able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 60 days overdue are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. (I) INVENTORIES Inventories are valued at the lower of cost and net realisable value. Cost includes expenditure incurred in acquiring and bringing the inventories to their existing condition and location and is determined using the weighted average cost method. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 56 (J) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING The Consolidated Entity uses derivative financial instruments to manage commodity price exposures. Such derivative financial instruments are initially recorded at fair value on the date on which the derivative contract is entered into and are subsequently remeasured to fair value. Certain derivative instruments are also held for trading for the purpose of making short term gains. None of the derivatives qualify for hedge accounting and changes in fair value are recognised immediately in profit or loss in other revenue and expenses. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. (K) JOINT ARRANGEMENTS Joint arrangements are arrangements over which two or more parties have joint control. Joint Control is the contractual agreed sharing of control of the arrangement which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. Joint arrangements are classified as ether a joint operation or a joint venture, based on the rights and obligations arising from the contractual obligations between the parties to the arrangement. To the extent the joint arrangement provides the Consolidated Entity with rights to the individual assets and obligations arising from the joint arrangement, the arrangement is classified as a joint operation and as such, the Consolidated Entity recognises its: • • Assets, including its share of any assets held jointly Liabilities, including its share of liabilities incurred jointly; • Revenue from the sale of its share of the output arising from the joint operation; • • Share of revenue from the sale of the output by the joint operation; and Expenses, including its share of any expenses incurred jointly To the extent the joint arrangement provides the Consolidated Entity with rights to the net assets of the arrangement, the investment is classified as a joint venture and accounted for using the equity method. Under the equity method, the cost of the investment is adjusted by the post-acquisition changes in the Consolidated Entity’s share of the net assets of the joint venture. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 57 (L) AVAILABLE-FOR-SALE INVESTMENTS All available-for-sale investments are initially recognised at fair value plus directly attributable transaction costs. Available-for-sale investments are those non-derivative financial assets, principally equity securities that are designated as available-for-sale. Investments are designated as available-for-sale if they do not have fixed maturities and fixed and determinable payments and management intends to hold them for the medium to long term. After initial recognition, available-for-sale investments are measured at fair value. Gains or losses are recognised in other comprehensive income and presented as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in profit or loss. The fair value of investments that are actively traded in organised markets is determined by reference to quoted market bid prices at the close of business on the reporting date. For investments with no active market, fair value is determined using valuation techniques. Such valuation techniques include using recent arm’s length transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models. Where fair value cannot be reliably measured for certain unquoted investments, these investments are measured at cost. (M) INVESTMENTS IN ASSOCIATES The Consolidated Entity’s investment in its associates is accounted for using the equity method of accounting in the consolidated financial statements. The associates are entities over which the Consolidated Entity has significant influence and that are neither subsidiaries nor joint ventures. The Consolidated Entity generally deems it has significant influence if it has over 20% of the voting rights. Under the equity method, investments in the associates are carried in the consolidated statement of financial position at cost plus post-acquisition changes in the Consolidated Entity’s share of net assets of the associates. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Consolidated Entity determines whether it is necessary to recognise any impairment loss with respect to the Consolidated Entity’s net investment in associates. Goodwill included in the carrying amount of the investment in associate is not tested separately, rather the entire carrying amount of the investment is tested for impairment as a single asset. If an impairment is recognised, the amount is not allocated to the goodwill of the associate. The Consolidated Entity’s share of its associates’ post-acquisition profits or losses is recognised in the profit and loss, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post- acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates reduce the carrying amount of the investment. When the Consolidated Entity’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Consolidated Entity does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The financial statements of the associate are prepared for the same reporting period as the Consolidated Entity. When necessary, adjustments are made to bring the accounting policies in line with those of the Consolidated Entity. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 58 (N) BUSINESS COMBINATIONS Business combinations are accounted for using the acquisition method. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity issued by the acquirer, and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the appropriate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred. When the Consolidated Entity acquires a business, it assess the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Consolidated Entity’s operating or accounting policies and other pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in the host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured at fair value as at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with AASB 139 either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it shall not be remeasured and subsequent settlement is accounted for within equity. In instances, where the contingent consideration does not fall within the scope of AASB 139, it is measured in accordance with the appropriate AASB. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the fair value of the identifiable net assets acquired and liabilities assumed. If this consideration is lower than the fair value of the identifiable net assets of the subsidiary acquired, the difference is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Consolidated Entity’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 59 (O) PROPERTY, PLANT AND EQUIPMENT Plant and equipment is stated at historical cost less accumulated depreciation and any impairment in value. Capital work-in-progress is stated at cost and comprises all costs directly attributable to bringing the assets under construction ready to their intended use. Capital work-in-progress is transferred to property, plant and equipment at cost on completion. Depreciation is calculated on a straight-line basis over the estimated useful life of the asset, or where appropriate, over the estimated life of the mine. Major depreciation periods are: • Mine specific plant and equipment is depreciated using – the shorter of life of mine or useful life. Useful life ranges from 2 to 10 years. • Buildings – the shorter of life of mine or useful life. Useful life ranges from 5 to 40 years. • Office Plant and equipment is depreciated at 33% per annum for computers and office machines and 20% per annum for other office equipment and furniture. Impairment The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the profit and loss in the period the item is derecognised. (P) EXPLORATION AND EVALUATION EXPENDITURE Expenditure on acquisition, exploration and evaluation relating to an area of interest is carried forward at cost where rights to tenure of the area of interest are current and; i. it is expected that expenditure will be recouped through successful development and exploitation of the area of interest or alternatively by its sale and/or; ii. exploration and evaluation activities are continuing in an area of interest but at reporting date have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Where uncertainty exists as to the future viability of certain areas, the value of the area of interest is written off to the profit and loss or provided against. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 60 Impairment The carrying value of capitalised exploration and evaluation expenditure is assessed for impairment at the cash generating unit level whenever facts and circumstances suggest that the carrying amount of the asset may exceed its recoverable amount. An impairment exists when the carrying amount of an asset or cash-generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. Any impairment losses are recognised in the profit and loss. (Q) MINE PROPERTIES AND DEVELOPMENT Expenditure on the acquisition and development of mine properties within an area of interest are carried forward at cost separately for each area of interest. Accumulated expenditure is amortised over the life of the area of interest to which such costs relate on a production output basis. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Impairment The carrying value of capitalised mine properties and development expenditure is assessed for impairment whenever facts and circumstances suggest that the carrying amount of the asset may exceed its recoverable amount. The recoverable amount of capitalised mine properties and development expenditure is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 61 (R) NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE AND DISCONTINUED OPERATIONS Non-current assets and disposal groups are classified as held for sale and measured at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction. They are not depreciated or amortised. For an asset or disposal group to be classified as held for sale it must be available for immediate sale in its present condition and its sale must be highly probable. An impairment loss is recognised for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset (or disposal group), but is not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset (or disposal group) is recognised as the date of derecognition. A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the statement of comprehensive income and the assets and liabilities are presented separately on the face of the statement of financial position. (S) INTANGIBLES Intangible assets acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated assets, excluding capitalised development costs, are not capitalised and expenditure is charged against profits or losses in the year the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, which is a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed each reporting period to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for as a change in an accounting estimate and is thus accounted for on a prospective basis. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 62 (T) IMPAIRMENT OF NON-FINANCIAL ASSETS The Consolidated Entity assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Consolidated Entity estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. The Consolidated Entity bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Consolidated Entity’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses of continuing operations, including impairment on inventories, are recognised in the profit and loss, except for properties previously revalued with the revaluation taken to other comprehensive income. For such properties, the impairment is recognised in other comprehensive income up to the amount of any previous revaluation. For assets, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Consolidated Entity estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. (U) TRADE AND OTHER PAYABLES Trade payables and other payables are carried at amortised cost and due to their short-term nature they are not discounted. They represent liabilities for goods and services provided to the Consolidated Entity prior to the end of the financial year that are unpaid and arise when the Consolidated Entity becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and usually paid within 30 days of recognition. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 63 (V) REHABILITATION COSTS The Consolidated Entity is required to decommission and rehabilitate mines and processing sites at the end of their producing lives to a condition acceptable to the relevant authorities. The expected cost of any approved decommissioning or rehabilitation programme, discounted to its net present value, is provided when the related environmental disturbance occurs. The cost is capitalised when it gives rise to future benefits, whether the rehabilitation activity is expected to occur over the life of the operation or at the time of closure. The capitalised cost is amortised over the life of the operation and the increase in the net present value of the provision for the expected cost is included in financing expenses. Expected decommissioning and rehabilitation costs are based on the discounted value of the estimated future cost of detailed plans prepared for each site. Where there is a change in the expected decommissioning and restoration costs, the value of the provision and any related asset are adjusted and the effect is recognised in profit or loss on a prospective basis over the remaining life of the operation. The estimated costs of rehabilitation are reviewed annually and adjusted as appropriate for changes in legislation, technology or other circumstances. Cost estimates are not reduced by potential proceeds from the sale of assets or from plant clean up at closure. (W) INTEREST-BEARING LOANS AND BORROWINGS All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Borrowings are classified as current liabilities unless the Consolidated Entity has the unconditional right to defer settlement of the liability for at least 12 months after the reporting date. (X) BORROWING COSTS Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (i.e. an asset that necessarily takes a substantial period of time to get ready for its intended use or sale) are capitalised as part of the cost of that asset. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. (Y) PROVISIONS Provisions are recognised when the Consolidated Entity has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 64 (Z) LEASES Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. (i) (ii) Operating Leases The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense in profit and loss on a straight-line basis over the lease term. Contingent rentals are recognised as an expense in the financial year in which they are incurred. Finance Leases Leases which effectively transfer substantially all the risks and benefits incidental to ownership of the leased item to the Consolidated Entity are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit and loss. Capitalised leased assets are depreciated over the estimated useful life of the asset or where appropriate, over the estimated life of the mine. The cost of improvements to or on leasehold property is capitalised, disclosed as leasehold improvements, and amortised over the unexpired period of the lease or the estimated useful lives of the improvements, whichever is the shorter. (AA) ISSUED CAPITAL Issued and paid up capital is recognised at the fair value of the consideration received by the Consolidated Entity. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction in the proceeds received. (AB) REVENUE Revenue is measured at the fair value of the consideration received or receivable to the extent it is probable that the economic benefits will flow to the Consolidated Entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Tin sales Revenue from tin production is recognised when the significant risks and rewards of ownership have passed to the buyer. Copper sales Revenue from copper production is recognised when the significant risks and rewards of ownership have passed to the buyer. Gold sales Revenue from gold production is recognised when the significant risks and rewards of ownership have passed to the buyer. Interest income Revenue is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 65 (AC) SHARE-BASED PAYMENT TRANSACTIONS The Consolidated Entity provides benefits to employees (including Directors) in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions). The Consolidated Entity has one plan in place that provides these benefits. It is the Long Term Incentive Plan (“LTIP”) which provides benefits to all employees including Directors. The scheme has no direct performance requirements but has specified time restrictions on the exercise of options. The share options will vest immediately for Directors and after one year or as determined by the Board of Directors for employees. Employees and Directors are able to exercise the share options for up to three years after vesting before the options lapse. Where a participant ceases employment prior to the vesting of their share options, the share options are forfeited. Where a participant ceases employment after the vesting of their share options, the share options automatically lapse after six months of ceasing employment. The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by using a Black & Scholes model. Further details of which are given in note 30. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of Metals X Limited (market conditions) if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). At each subsequent reporting date until vesting, the cumulative charge to the statement of comprehensive income is the product of (i) the grant date fair value of the award; (ii) the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period and the likelihood of non-market performance conditions being met; and (iii) the expired portion of the vesting period. The charge to profit and loss for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. There is a corresponding credit to equity. Until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Any award subject to a market condition is considered to vest irrespective of whether or not the market condition is fulfilled, provided that all other conditions are satisfied. If a non-vesting condition is within the control of the Consolidated Entity, Company or the employee, the failure to satisfy the condition is treated as a cancellation. If a non-vesting condition within the control of neither the Consolidated Entity, Company nor employee is not satisfied during the vesting period, any expense for the award not previously recognised is recognised over the remaining vesting period, unless the award is forfeited. If the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. An additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 66 If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of dilutive earnings per share. (AD) EMPLOYEE BENEFITS (i) Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled wholly within 12 months of the reporting date are recognised in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. (ii) Long service leave The liability for long service leave is recognised and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future cash outflows. (iii) Superannuation Contributions made by the Consolidated Entity to employee superannuation funds, which are defined contribution plans, are charged as an expense when incurred. (AE) EARNINGS PER SHARE Basic earnings per share is calculated as net profit attributable to members of the parent, adjusted to exclude any costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net profit attributable to members of the parent adjusted for: • • • cost of servicing equity (other than dividends) and preference share dividends; the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised; and other non-discriminatory changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 67  (AF) OTHER TAXES Revenues, expenses and assets are recognised net of the amount of GST except: • when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables, which are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of amounts of GST recoverable from, or payable to, the taxation authority. (AG) INCOME TAX The Consolidated Entity entered into a tax consolidated Consolidated Entity as of 1 July 2004. Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except: • • when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised except: • when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of the deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 68 Unrecognised income taxes are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Income taxes relating to items recognised directly in equity are recognised in equity and not in the profit and loss. Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority. Tax consolidation legislation Metals X Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2004. The head entity, Metals X Limited and the controlled entities in the tax Consolidated Entity continue to account for their own current and deferred tax amounts. The Consolidated Entity has applied the Consolidated Entity allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax Consolidated Entity. (AH) ONEROUS OPERATING LEASE PROVISION A provision for an onerous operating lease is recognised when the expected benefits to be derived from the lease are lower than the unavoidable cost of meeting the obligations under the lease. The provision is measured at the present value of the expected net cost of continuing with the lease. 3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which form the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Management has identified the following critical accounting policies for which significant judgements have been made as well as the following key estimates and assumptions that have the most significant impact on the financial statements. Actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods. Further details of the nature of these assumptions and conditions may be found in the relevant notes to the financial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 69 (I) SIGNIFICANT JUDGMENTS MADE IN APPLYING ACCOUNTING POLICIES Impairment of available-for-sale-investments In determining the amount of impairment of financial assets, the Consolidated Entity has made judgments in identifying financial assets whose decline in fair value below cost is considered “significant” or “prolonged”. A significant decline is assessed based on the historical volatility of the share price. The higher the historical volatility, the greater the decline in fair value required before it is likely to be regarded as significant. A prolonged decline is based on the length of time over which the share price has been depressed below cost. A sudden decline followed by immediate recovery is less likely to be considered prolonged compared to a sustained fall of the same magnitude over a longer period. The Consolidated Entity considers a less than a 10% decline in fair value is unlikely to be considered significant for investments actively traded in a liquid market, whereas a decline in fair value of greater than 20% will often be considered significant. For less liquid investments that have historically been volatile (standard deviation greater than 25%), a decline of greater than 30% is usually considered significant. Generally, the Consolidated Entity does not consider a decline over a period of less than three months to be prolonged. However, where the decline in fair value is greater than six months for liquid investments and 12 months for illiquid investments, it is usually considered prolonged. Classification of assets and liabilities as held for sale The Consolidated Entity classifies assets and liabilities as held for sale when the carrying amount will be recovered through a sale transaction. The assets and liabilities must be available for immediate sale and the Consolidated Entity must be committed to selling the assets either through the entering into a contractual sale agreement or the activation and commitment to a program to locate a buyer and dispose of the assets and liabilities. (II) SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS Determination of mineral resources and ore reserves The determination of reserves impacts the accounting for asset carrying values, depreciation and amortisation rates and provisions for mine rehabilitation. Metals X Limited estimates its mineral resource and reserves in accordance with the Australian code for Reporting of Exploration Results, Mineral Resources and Ore Reserves 2012 (the “JORC code”). The information on mineral resources and ore reserves were prepared by or under the supervision of Competent Persons as defined in the JORC code. The amounts presented are based on the mineral resources and ore reserves determined under the JORC code. There are numerous uncertainties inherent in estimating mineral resources and ore reserves and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of reserves and may, ultimately, result in the reserves being restated. Mine rehabilitation provision The Consolidated Entity assesses its mine rehabilitation provision on an annual basis in accordance with the accounting policy stated in note 2(v). Significant judgement is required in determining the provision for mine rehabilitation as there are many transactions and other factors that will affect the ultimate liability payable to rehabilitate the mine site. Factors that will affect this liability include future development, changes in technology and changes in interest rates. When these factors change or become known in the future, such difference will impact the mine rehabilitation provision in the period in which they change or become known. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 70 Impairment of capitalised exploration and evaluation expenditure The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Consolidated Entity decides to exploit the related area interest itself or, if not, whether it successfully recovers the related exploration and evaluation asset through sale. Factors that could impact the future recoverability include the level of reserves and resources, future technological changes, which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, profits and net assets will be reduced in the period in which this determination is made. In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage that permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent it is determined in the future that this capitalised expenditure should be written off, profits and net assets will be reduced in the period in which this determination is made. Impairment of capitalised mine development expenditure The future recoverability of capitalised mine development expenditure is dependent on a number of factors, including the level of proved, probable and inferred mineral resources, future technological changes, which could impact the cost, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. The Consolidated Entity regularly reviews the carrying values of its mine development assets in the context of internal and external consensus forecasts for commodity prices and foreign exchange rates, with the application of appropriate discount rates for the assets concerned. To the extent that capitalised mine development expenditure is determined not to be recoverable in the future, this will reduce profit in the period in which this determination is made. Capitalised mine development expenditure is assessed for recoverability in a manner consistent with property, plant and equipment as described below. Impairment of property, plant and equipment Property, plant and equipment is reviewed for impairment if there is any indication that the carrying amount may not be recoverable. Where a review for impairment is conducted, the recoverable amount is assessed by reference to the higher of “value in use” (being net present value of expected future cash flows of the relevant cash generating unit) and “fair value less costs to sell”. In determining the value in use, future cash flows for each cash generating unit (CGU) (ie each mine site) are prepared utilising managements latest estimates of: • • • • • • the quantities of ore reserves and mineral resources for which there is a high degree of confidence of economic extraction; royalties and taxation; future production levels; future commodity prices; future cash costs of production and capital expenditure; and other relevant cash inflows and outflows. Cash flow scenarios for a range of commodity prices and foreign exchange rates are assessed using internal and external market forecasts, and the present value of the forecast cash flows is determined utilising a discount rate based on industry weighted average cost of capital. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 71 (II) SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS (CONTINUED) The Consolidated Entity’s cash flows are most sensitive to movements in commodity price, expected quantities of ore reserves and mineral resources and key operating costs. In particular the Renison Tin Project’s forecasted cash flows are most sensitive to variations in the commodity prices and the South Kalgoorlie Operation is most sensitive to expected quantities of ore reserves and mineral resources to be extracted and therefore the estimated future cash inflows resulting from the sale of product produced is dependent on these assumptions. Variations to the expected cash flows, and the timing thereof, could result in significant changes to any impairment losses recognised, if any, which in turn could impact future financial results. Cash flow scenarios for a range of commodity prices and foreign exchange rates are assessed using internal and external market forecasts, and the present value of the forecast cash flows is determined utilising a discount rate based on industry weighted average cost of capital. The Consolidated Entity’s cash flows are most sensitive to movements in commodity price, expected quantities of ore reserves and mineral resources and key operating costs. In particular the Renison Tin Project’s forecasted cash flows are most sensitive to variations in the commodity prices and the South Kalgoorlie Operation is most sensitive to expected quantities of ore reserves and mineral resources to be extracted and therefore the estimated future cash inflows resulting from the sale of product produced is dependent on these assumptions. Variations to the expected cash flows, and the timing thereof, could result in significant changes to any impairment losses recognised, if any, which in turn could impact future financial results. Life of mine method of amortisation and depreciation The Consolidated Entity applies the life of mine method of amortisation and depreciation to its mine specific plant and to mine properties and development based on ore tonnes mined. These calculations require the use of estimates and assumptions. Significant judgement is required in assessing the available reserves and the production capacity of the plants to be depreciated under this method. Factors that are considered in determining reserves and resources and production capacity are the Consolidated Entity’s history of converting resources to reserves and the relevant time frames, the complexity of metallurgy, markets and future developments. When these factors change or become known in the future, such differences will impact pre tax profit and carrying values of assets. During the year there was an increase in the available reserves, which has had an impact on assets being amortised using the unit of production amortisation method resulting in a decrease in the amortisation expense for the period. Share-based payment transactions The Consolidated Entity measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using a Black & Scholes model, using the assumptions as discussed in note 30. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities in the next annual reporting period but may impact expenses and equity. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 72 4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Consolidated Entity’s principal financial instruments comprise receivables, payables, unsecured loans, finance lease and hire purchase contracts, cash and short-term deposits, available-for-sale investments and derivatives. Risk exposures and responses The Consolidated Entity manages its exposure to key financial risks in accordance with the Consolidated Entity’s financial risk management policy. The objective of the policy is to support the delivery of the Consolidated Entity’s financial targets while protecting future financial security. The Consolidated Entity enters into derivative transactions, principally zero cost collar put and call options. The purpose is to manage the commodity price risks arising from the Consolidated Entity’s operations. These derivatives provide economic hedges, but do not qualify for hedge accounting and are based on limits set by the board. The main risks arising from the Consolidated Entity’s financial instruments are interest rate risk, foreign currency risk, commodity risk, credit risk, equity price risk and liquidity risk. The Consolidated Entity uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate, foreign exchange risk and assessments of market forecasts for interest rate, foreign exchange and commodity prices. Ageing analysis of and monitoring of receivables are undertaken to manage credit risk, liquidity risk is monitored through the development of future rolling cash flow forecasts. The board reviews and agrees policies for managing each of these risks as summarised below. Primary responsibility for identification and control of financial risks rests with the Board. The Board reviews and agrees policies for managing each of the risks identified below, including for interest rate risk, credit allowances and cash flow forecast projections. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. The accounting classification of each category of financial instruments as defined in note 2, and their carrying amounts, are set out below: (A) INTEREST RATE RISK The Consolidated Entity’s exposure to risks of changes in market interest rates relate primarily to the Consolidated Entity’s long term debt obligations and cash balances. The level of debt is disclosed in notes 23 and 26. The Consolidated Entity’s policy is to manage its interest cost using fixed rate debt. Therefore the Consolidated Entity does not have any variable interest rate risk on its debt. The Consolidated Entity constantly analyses its interest rate exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative financing positions and the mix of fixed and variable interest rates. The following sensitivity analysis is based on the interest rate risk exposures in existence at the reporting date. The sensitivity analysis is for variable rate instruments. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 73 4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (A) INTEREST RATE RISK (CONTINUED) At 30 June 2014, if interest rates had moved by a reasonably possible 0.5%, as illustrated in the table below, with all other variables held constant, post tax profits and equity would have been affected as follows: Post tax profit higher/(lower) Other Comprehensive Income higher/(lower) 2014 2013 2014 2013 Judgements of reasonably possible movements: + 0.5% (50 basis points) - 0.5% (50 basis points) 148,629 (148,629) 5,191 (5,191) - - - - A sensitivity of +%0.5 or -0.5% has been selected as this is considered reasonable given the current level of short-term and long-term Australian dollar interest rates. The movements in profit are due to possible higher or lower interest income from variable rate cash balances. The sensitivity is higher in 2014 than 2013 due to an Increase in the balance of cash and cash equivalents held in variable interest rate accounts in 2014. At the reporting date the Consolidated Entity’s exposure to interest rate risk for classes of financial assets and financial liabilities is set out below. 2014 Financial Assets Cash and cash equivalents Trade and other receivables Other financial assets Financial Liabilities Trade and other payables Interest bearing liabilities Net financial assets/(liabilities) 2013 Financial assets Cash and cash equivalents Trade and other receivables Other financial assets Financial liabilities Trade and other payables Interest bearing liabilities Net financial assets/(liabilities) Floating interest rate Fixed interest Non-Interest bearing Total carrying amount 42,465,511 - - 42,465,511 14,643,360 - 6,481,192 21,124,552 - 19,297,623 - 19,297,623 - - - - (172,987) (172,987) (33,064,474) - (33,064,474) 57,108,871 19,297,623 6,481,192 82,887,686 (33,064,474) (172,987) (33,237,461) 49,650,225 Floating interest rate Fixed interest Non-Interest bearing Total carrying amount 1,483,016 - - 1,483,016 59,970,104 - 6,885,885 66,855,989 - 12,441,035 - 12,441,035 - - - - (187,813) (187,813) (11,108,270) - (11,108,270) 61,453,120 12,441,035 6,885,885 80,780,040 (11,108,270) (187,813) (11,296,083) 69,483,957 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 74 (B) CREDIT RISK Credit risk arises from the financial assets of the Consolidated Entity, which comprises cash and cash equivalents, trade and other receivables, available-for-sale financial assets, other financial assets held as security and derivative instruments. Cash and cash equivalents are held with National Australia Bank which is an Australian Bank with an AA credit rating (Standard & Poor’s). The Consolidated Entity’s exposure to credit risk arises from potential default of the counter party, with the maximum exposure equal to the carrying amount of the financial assets (as outlined in each applicable note) as well as $6,481,192 (2013: $6,885,885) in relation to performance bond facilities and security deposits (refer to note 15). The Consolidated Entity does not hold any credit derivatives to offset its credit exposure. The Consolidated Entity trades only with recognised, creditworthy third parties and as such collateral is not requested nor is it the Consolidated Entity’s policy to securitise its trade and other receivables. Receivable balances are monitored on an ongoing basis with the result that the Consolidated Entity does not have a significant exposure to bad debts. Significant concentrations of credit risk are in relation to cash and cash equivalents with Australian banks. (C) PRICE RISK Equity Security Price Risk The Consolidated Entity’s revenues are exposed to equity security price fluctuations arising from investments in equity securities. At 30 June 2014, if equity security prices had moved by a reasonably possible 20%, as illustrated in the table below, with all other variables held constant, post tax profits and equity would have been affected as follows: Post tax profit higher/(lower) Other Comprehensive Income higher/(lower) 2014 2013 2014 2013 Judgements of reasonably possible movements: Price + 20% Price - 20% - - (83,381) (371,039) 83,381 - 371,039 - A sensitivity of +20% or -20% has been selected as this is considered reasonable given recent fluctuations in equity prices and management’s expectations of future movements. The movements in other comprehensive income are due to possible higher or lower equity security prices from investments in equity securities that are classified as available-for-sale financial assets (refer to note 2(l)). The overall sensitivity for post-tax profits and equity in 2014 is lower due to decreases in the market value of the underlying securities during the financial year (refer to notes 16 and 17). (D) FOREIGN CURRENCY RISK EXPOSURE As a result of sales receipts being denominated in Malaysian Ringgit and US dollars, the Consolidated Entity’s cash flows can be affected by movements in the Malaysian Ringgit/Australian dollar and US dollar /Australian dollar exchange rates. The Consolidated Entity’s exposure to foreign currency is however not considered to be significant. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 75 4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (E) LIQUIDITY RISK Liquidity risk arises from the financial liabilities of the Consolidated Entity and the subsequent ability to meet the obligations to repay the financial liabilities as and when they fall due. The Consolidated Entity’s objective is to maintain a balance between continuity of funding and flexibility through the use of finance and hire purchase leases. The table below reflects all contractually fixed payables and receivables for settlement, repayment and interest resulting from recognised financial assets and liabilities, including derivative financial instruments as of 30 June 2014. For derivative financial instruments the market value is presented, whereas for the other obligations the respective undiscounted cash flows for the respective upcoming fiscal years are presented. Cash flows for financial assets and liabilities without fixed amount or timing are based on the conditions existing as 30 June. The remaining contractual maturities of the Consolidated Entity’s financial liabilities are: 6 months or less 6 - 12 months 1 - 5 years Over 5 years 2014 2013 33,101,159 36,685 121,969 - 33,259,813 11,144,955 36,685 121,969 - 11,303,609 Maturity analysis of financial assets and liabilities based on management’s expectation. The risk implied from the values shown in the table below, reflects a balanced view of cash inflows and outflows. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in our ongoing operations such as property, plant, equipment and investments of working capital e.g. inventories and trade receivables. To monitor existing financial assets and liabilities as well as to enable effective controlling of future risks, management monitors its Consolidated Entity’s expected settlement of financial assets and liabilities on an ongoing basis. 2014 Financial assets Cash and equivalents Trade and other receivables Available-for-sale financial assets Derivatives-held for trading Other financial assets Financial liabilities Trade and other payables Interest bearing loans Net inflow/(outflow) <6 months 6-12 months 1-5 years >5 years Total 43,839,439 19,297,623 - - 6,481,192 15,117,131 - - - - 69,618,254 15,117,131 - - - - - - - - 58,956,569 19,297,623 595,581 595,581 - - - 6,481,192 595,581 85,330,965 (33,064,474) (36,685) (33,101,159) 36,517,095 - (36,685) (36,685) 15,080,446 - (121,969) (121,969) (121,969) - - - 595,581 (33,064,474) (195,339) (33,259,813) 52,071,152 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 76 <6 months 6-12 months 1-5 years >5 years Total 2013 Financial assets Cash and equivalents 1,546,114 62,521,651 Trade and other receivables 12,441,035 Available-for-sale financial assets Derivatives-held for trading Other financial assets - 70, 073 6,885,885 - - - - 20,943,107 62,521,651 - - - - - - - - 64,067,765 12,441,035 2,650,277 2,650,277 - - 70,073 6,885,885 2,650,277 86,115,035 Financial liabilities Trade and other payables Interest bearing loans Net inflow/(outflow) (11,108,270) (36,685) (11,144,955) 9,798,152 - (36,685) (36,685) 62,484,966 - (121,969) (121,969) (121,969) - - (11,108,270) (195,339) - 2,650,277 (11,303,609) 74,811,426 (F) FAIR VALUES For all financial assets and liabilities recognised in the statement of financial position, carrying amount approximates fair value unless otherwise stated in the applicable notes. The methods for estimating fair value are outlined in the relevant notes to the financial statements. The Consolidated Entity uses various methods in estimating the fair value of a financial instrument. The methods comprise: Level 1 – the fair value is calculated using quoted prices in active markets. Level 2 - the fair value is estimated using inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from price). Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. The fair value of the financial instruments as well as the methods used to estimate the fair value are summarised in the table below. 2014 Quoted market price (Level 1) Valuation technique market observable inputs (Level 2) Valuation technique non market observable inputs (Level 3) Total Financial Assets Available-for-sale financial assets Listed investments Unlisted investments Derivatives Listed investments Unlisted investments 595,581 - - - 595,581 - - - - - - - - - - 595,581 - - - 595,581 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 77 4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (F) FAIR VALUES (CONTINUED) 2013 Quoted market price (Level 1) Valuation technique market observable inputs (Level 2) Valuation technique non market observable inputs (Level 3) Total Financial Assets Available-for-sale financial assets Listed investments Unlisted investments Derivatives Listed investments Unlisted investments 2,650,277 - 70,073 - 2,720,350 - - - - - - - - - - 2,650,277 - 70,073 - 2,720,350 Quoted market price represents the fair value determined based on quoted prices on active markets as at the reporting date without any deduction for transaction costs. The fair value of the listed equity investments are based on quoted market prices Transfer between categories In the previous year there was a transfer of the Aziana Limited shares into Level 1 from investment in associates (refer to note 18). There were no transfers between Level 1 and Level 2, and no transfers into and out of Level 3 fair value measurement. The fair value decrease of the available-for-sale investments has been recorded in profit and loss. 5. REVENUE Revenue from sale of tin concentrate Revenue from sale of copper concentrate Revenue from sale of gold Interest received - other corporations Total revenue 6. OTHER INCOME Net profit/(loss) on sale of assets Net gain on share investments Net profit from toll processing Other income Total other income 2014 75,246,131 397,429 161,051,109 1,905,163 238,599,832 2013 62,805,991 3,109,686 - 2,800,695 68,716,372 2014 1,130,148 - 2,808,299 947,307 4,885,754 2013 (127,199) 6,022,731 - 906,204 6,801,736 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 78 7. EXPENSES (a) Cost of sales Salaries, wages expense and other employee benefits Superannuation expense Other production cash costs Net reversal of write-down in value of inventories to estimated net realisable value Royalty Depreciation and amortisation expense Depreciation of non-current assets Property, plant and equipment Buildings Amortisation of non-current assets Mine, properties and development costs Total cost of sales (b) Other expenses Administration expenses Employee benefits expense Salaries and wages expense Directors' fees and other benefits Superannuation expense Other employee benefits Share-based payments Other administration expenses Consulting expenses Travel and accommodation expenses Operating lease costs Stamp duty compliance costs Administration costs Depreciation expense Depreciation of non-current assets Property plant and equipment Total Administration expenses Other expenses Care and maintenance costs Foreign exchange (loss)/gain Total other expenses (c) Fair value change in financial instruments Fair value change in derivatives Total fair value change in financial instruments (d) Finance costs Interest Unwinding of rehabilitation provision discount Total finance costs 2014 25,019,802 2,314,332 113,032,828 (685,864) 12,633,139 2013 7,344,167 660,975 40,142,129 (1,317,102) 1,547,198 6,815,889 429,006 3,438,473 279,698 26,739,758 186,298,890 7,132,933 59,228,471 4,144,265 261,507 407,534 18,527 - 4,831,833 1,112,029 123,889 569,707 1,766,211 119,903 3,691,739 2,794,922 147,529 264,921 22,527 - 3,229,899 818,633 299,142 246,494 3,482,288 898,371 5,744,928 313,306 8,836,878 322,116 9,296,943 808,309 (493,801) 314,508 9,151,386 606,197 28,524 634,721 9,931,664 70,073 70,073 378,916 378,916 261,420 1,655,028 1,916,448 319,682 37,447 357,129 79 8. INCOME TAX (a) Major components of income tax expense: Income Statement Current income tax expense Current income tax expense/(benefit) Recognition of carry forward losses and other temporary differences Adjustments in respect of current income tax of previous years Deferred income tax Relating to recoupment of carry forward tax losses in current year Relating to origination and reversal of temporary differences in current year Adjustments in respect of deferred income tax of previous years Income tax benefit reported in the income statement (b) Amounts charged or credited directly to equity Deferred income tax related to items charged or credited directly to equity Unrealised gain on available-for-sale investments Share issue costs Income tax benefit reported in equity 2014 2013 283,779 (9,305,880) (12,188,200) (14,645,002) 6,101,423 724,364 - - 11,622,414 13,130,744 (5,819,416) (535,996) - (10,631,770) - - - - - - (c) A reconciliation of income tax benefit and the product of accounting loss before income tax multiplied by the Consolidated Entity’s applicable income tax rate is as follows: Total accounting profit before income tax 37,451,737 (1,959,456) At statutory income tax rate of 30% (2013: 30%) 11,235,521 (587,837) Non-deductible items Deductible items Prior year tax benefits Tax losses not brought to account Recognition of tax losses not previously recognised Income tax benefit reported in income the statement of comprehensive income 868,809 (198,138) 282,008 - 4,415,415 (2,693) 188,368 - (12,188,200) (14,645,023) - (10,631,770) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 80 (d) Deferred income tax at 30 June relates to the following: Statement of financial position Statement of comprehensive income 2014 2013 2014 2013 Deferred tax liabilities Exploration Deferred mining (22,563,590) (24,761,022) 2,197,432 (9,670,409) (14,778,689) (7,938,641) (6,840,048) (1,414,539) Mine site establishment and refurbishment (6,837,348) (6,479,428) Available-for-sale financial assets Interest receivable Inventories Prepayments Diesel rebate Gross deferred tax liabilities Deferred tax assets Property, plant and equipment Investment in associates Derivative held for trading Inventories Borrowing costs Accrued expenses Provision for employee entitlements Provision for fringe benefits tax Provision for rehabilitation Recognised tax losses Gross deferred tax assets Net deferred tax liabilities Deferred tax income benefit 2,743,658 - (2,431,237) - (115,367) 3,560,318 (252,244) (750,706) (1,097) 9,926 (43,982,573) (36,612,894) (357,920) (816,660) 252,244 (1,680,531) 1,097 (125,293) (2,195,670) 4,344,577 (36,083) (57,440) (1,097) 11,879 335,452 3,175,170 (2,839,718) 667,283 - - 627,713 60,198 80,250 1,689,238 644 4,127,695 - 175,666 437,776 12,587 43,050 621,604 (667) 889,323 - (4,075,487) (175,666) 45,194 189,937 (419,876) 47,611 37,200 1,067,634 1,311 3,238,372 (5,733) 12,797 190,636 (2,013) 11,233 37,061,383 31,258,385 43,982,573 36,612,894 - - (5,802,998) (12,594,748) (e) Tax Consolidation The Company and its 100% owned subsidiaries are a tax consolidated group with effect from 1 July 2004. Metals X Limited is the head entity of the tax consolidated group. Members of the group have entered into a tax sharing agreement that provides for the allocation of income tax liabilities between the entities should the head entity default on its tax payments obligations. No amounts have been recognised in the financial statements in respect of this agreement on the basis that the possibility of default is remote. (f) Tax effect accounting by members of the tax consolidated group Members of the tax consolidated group have entered into a tax funding agreement. The tax funding agreement provides for the allocation of current taxes to members of the tax consolidated group. Deferred taxes are allocated to members of the tax consolidated group in accordance with a group allocation approach which is consistent with the principles of AASB 112 ‘Income Taxes’. The allocation of taxes under the tax funding agreement is recognised as an increase/decrease in the controlled entities intercompany accounts with the tax consolidated group head company, Metals X Limited. The nature of the tax funding agreement is such that no tax consolidation contributions by or distributions to equity participants are required. (g) Unrecognised Losses At 30 June 2014, there are unrecognised losses of $5,245,036 for the Consolidated Entity (2013: $17,433,256). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 81 9. EARNINGS PER SHARE The following reflects the income used in the basic and diluted earnings per share computations. (a) Earnings used in calculating earnings per share For basic earnings per share: Net profit attributable to ordinary equity holders of the parent Net profit attributable to ordinary equity holders of the parent Basic earnings per share (cents) For diluted earnings per share: Net profit attributable to ordinary equity holders of the parent (from basic EPS) Net profit attributable to ordinary equity holders of the parent Fully diluted earnings per share (cents) (b) Weighted average number of shares 2014 2013 37,451,737 37,451,737 2.26 8,672,314 8,672,314 0.56 37,451,737 37,451,737 2.26 8,672,314 8,672,314 0.56 Weighted average number of ordinary shares for basic earnings per share 1,654,199,042 1,552,612,389 Effect of Dilution: Share Options - 200,000 Weighted average number of ordinary shares adjusted for the effect of dilution 1,654,199,042 1,552,812,389 The Company had 12,312,500 (2013: 36,890,000) shares options on issue that are excluded from the calculation of diluted earnings per share for the current financial period because they were anti-dilutive. There have been no transactions involving ordinary shares or potential ordinary shares since that would significantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and before the completion of these financial statements. 10. DIVIDENDS PAID AND PROPOSED No dividends have been paid or declared by the Company during the financial period or up to the date of this report. 2014 2013 The amount of franking credits available for the subsequent financial year are: • • • • franking account balance as at the end of the financial year at 30% (2013: 30%) 6,071,472 5,930,931 franking credits that will arise from the payment of income tax payable as at the end of the financial year franking credits that will arising from the acquistion of subsidiary entity during the financial year - 86,436 - - franking credits that will arise from the receipt of dividends received during the financial year 28,108 140,541 The amount of franking credits available for future reporting years 6,186,016 6,071,472 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 82 11. CASH AND CASH EQUIVALENTS Cash at bank and in hand Short-term deposits Total CASH FLOWS RECONCILIATION For the purposes of the statement of cash flows, cash and cash equivalents comprise the following at 30 June: Cash at bank and in hand Short-term deposits Reconciliation of net profit/(loss) after income tax to net cash flows from operating activities Profit after income tax Income tax benefit Amortisation and depreciation Impairment losses Share based payments Unwinding of rehabilitation provision discount Fair value change in financial instruments Exploration and evaluation expenditure written off Profit on disposal of available-for-sale financial assets (Profit)/loss on disposal of property, plant and equipment Share of associates' net losses Changes in assets and liabilities Increase in inventories Decrease/(increase) in trade and other debtors Decrease in trade and other creditors Increase/(decrease) in employee entitlements Net cash flows from operating activities 2014 2013 42,465,511 14,643,360 1,483,016 59,970,104 57,108,871 61,453,120 42,465,511 1,483,016 14,643,360 59,970,104 57,108,871 61,453,120 37,451,737 8,672,314 - (10,631,770) 34,297,959 11,173,221 1,622,700 5,537,406 - 1,655,028 70,073 6,974,352 - 37,447 378,916 484,422 - (6,022,731) (1,130,148) 127,199 - 1,559,556 80,941,701 11,315,980 (2,339,477) (2,744,244) (2,965,026) 1,719,840 (1,794,466) (1,017,254) (446,250) 646,634 73,396,482 9,920,956 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 83 12. TRADE AND OTHER RECEIVABLES (CURRENT) Trade receivables (a) Other debtors (b) (a) Trade receivables are non-interest bearing and are generally on 30 - 90 day terms. 2014 5,843,660 13,453,963 2013 3,860,222 8,580,813 19,297,623 12,441,035 (b) Other debtors primarily relate to cash calls advanced to the Bluestone Mines Tasmania Joint Venture. Other debtors are non-interest bearing and are generally on 30 - 90 day terms. (c) The carrying amounts disclosed above represent the fair value. Collectibility of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An impairment allowance is recognised when there is objective evidence that the Consolidated Entity will not be able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 60 days overdue are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. At the end of the year no allowance has been made for impairment of receiveables. 13. INVENTORIES (CURRENT) Ore stocks at net realisable value Gold in circuit at cost Gold metal at cost Tin in circuit at cost Tin concentrate at cost Copper concentrate at cost Stores and spares at cost Provision for obsolete stores and spares Total inventories at lower of cost and net realisable value 2014 2013 1,929,939 9,199,154 1,093,439 76,673 91,705 - - 84,342 14,538,525 12,334,358 77,644 8,104,123 (1,770,803) 38,075 2,502,355 (408,032) 33,248,694 14,642,803 During the year was a net reversal of write-downs of $685,864 (2013: $1,317,102) for the Consolidated Entity. This expense is included in cost of sales refer to note 7(a). 14. OTHER ASSETS (CURRENT) Prepayments 2014 2013 812,095 472,040 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 84 15. OTHER FINANCIAL ASSETS (CURRENT) Other receivables - cash on deposit - performance bond facility Acquisition of subsidiary - performance bond facilities (refer to note 37) 2014 6,481,192 - 6,481,192 2013 3,736,885 3,149,000 6,885,885 The cash on deposit is interest bearing and is used by way of security for government performance bonds. 16. AVAILABLE-FOR-SALE FINANCIAL ASSETS (NON-CURRENT) Shares - Australian listed 2014 2013 595,581 2,650,277 Available-for-sale investments consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate. Listed shares The fair value of listed available-for-sale investments has been determined directly by reference to published price quotations in an active market. a. b. The Company has a 14.76% (2013: 14.76%) interest in MRC, which is involved in the mining and exploration of base metals in Australia and Mongolia. MRC is listed on the Australian Securities Exchange, however at the end of the period due to the prolonged period of suspension from trading the fair value of the Company’s investment was written down to nil (2013: $483,000 which was based on MRC’s quoted share price). At the end of the period the market value of the investment was lower than the carrying value, the Company has recognised an impairment of $483,000 (2013: $2,247,000). The Company has a 0.39% (2013: 4.99%) interest in Reed, which is involved in the mining and exploration of base metals in Australia. Reed is listed on the Australian Securities Exchange. During the period the Company sold 4.60% of its holding in exchange for the acquistion of the Meekatharra Gold Operation’s assets (refer to note 37). At the end of the period the fair value of the Company’s investment was $35,000 (2013: $934,000) which is based on Reed’s quoted share price. At the end of the period the market value of the investment was lower than the carrying value, the Company has recognised an impairment of $467,000 (2013: $4,192,896). c. The Company has a 13.73% (2013: 13.73%) interest in Aziana, which is involved in the exploration for base metals in Madagascar. Aziana is listed on the Australian Securities Exchange. At the end of the period the fair value of the Company’s investment was $560,580 (2013: $1,233,276) which is based on Aziana’s quoted share price. At the end of the period the market value of the investment was lower than the carrying value, the Company has recognised an impairment of $672,696 (2013: $3,251,364). 17. DERIVATIVE FINANCIAL INSTRUMENTS (NON-CURRENT) Derivatives - held for trading Derivatives - held for trading 2014 2013 - 70,073 The Consolidated Entity held 14,014,500 listed options in Aziana which expired on 30 September 2013. These options were acquired for nil cost as part of the IPO of Aziana Limited. The fair value of the options for 30 June 2013 was determined by direct reference to published price quotations in an active market. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 85 18. INVESTMENTS IN ASSOCIATES (NON-CURRENT) 2014 2013 (a) Investment details Listed Westgold Resources Limited Aziana Limited (b) Movements in carrying value of the Consolidated Entity's investment in associates Westgold Resources Pty Ltd At 1 July Additions Share of (losses)/profits after income tax Reversal of Impairment Share of change in reserves Acquisition of subsidiary (refer to note 37) At 30 June Aziana Limited At 1 July Transfer from available-for-sale financial assets at cost Additions Share of (losses)/profits after income tax Impairment Share of change in reserves Transfer to available-for-sale financial assets (refer to note 16) At 30 June (c) Fair Value of investment in listed entities - - - - - - - - - - - - - - - - - - - - - 15,755,563 - (1,600,863) 2,905,137 383,822 (17,443,659) - 4,083,590 - - (624,419) (1,834,472) (223,249) (1,401,450) - (i) In 2013 the Company had a 26.98% interest in Westgold, which is involved in the exploration for base metals in Australia. On 17 October 2012 Westgold ceased to be an associate of Metals X and became a wholly-owned subsidiary of Metals X following a merger by scheme of arrangement (refer to note 37). At the date of the merger the market value of the investment was higher than the carrying value, in 2013 the Company recognised a reversal of impairment of $2,905,137. (ii) As a result of the acquisition of Eternal Resources Limited by Aziana on 12 June 2013 the Company’s interest in Aziana was diluted from 25% to 13.73%. In 2013 in assessing the factors determining the classification of the investment in Aziana it was determined that it was no longer an investment in an associate and was reclassified as an available-for-sale financial asset (refer to note 16). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 86 19. PROPERTY, PLANT & EQUIPMENT (NON-CURRENT) Plant and equipment At cost Accumulated depreciation Impairment Net carrying amount Land and buildings At cost Accumulated depreciation Net carrying amount Capital work in progress at cost Total property, plant and equipment Movement in property, plant and equipment Plant and equipment At 1 July net of accumulated depreciation Additions Disposals Acquisition of subsidiary (refer to note 37) Reversal of impairment Depreciation charge for the year At 30 June net of accumulated depreciation Land and buildings At 1 July net of accumulated depreciation Additions Disposals Acquisition of subsidiary (refer to note 37) Depreciation charge for the year At 30 June net of accumulated depreciation Capital work in progress At 1 July net of accumulated depreciation Additions Acquisition of subsidiary (refer to note 37) Transfer to mine properties & development Transfer to plant and equipment Transfer to land and buildings At 30 June 2014 2013 114,735,726 33,772,108 (58,870,802) (23,134,286) - (3,942,962) 55,864,924 6,694,860 21,676,240 6,848,023 (15,958,748) (1,543,467) 5,717,492 5,304,556 1,845,878 568,300 63,428,294 12,567,716 6,694,860 26,257,743 12,647,265 3,004,544 (1,850,227) (5,657,838) 31,521,276 370,467 461,478 - (7,129,195) (3,760,589) 55,864,924 6,694,860 5,304,556 290,114 (125,678) 677,506 (429,006) 5,717,492 4,737,341 305,186 - 541,727 (279,698) 5,304,556 568,300 27,426,684 1,976,479 1,372,563 3,826,802 17,375 (1,577,728) (1,338,710) (26,257,743) (3,004,544) (290,114) 1,845,878 (305,186) 568,300 The carrying value of plant and equipment held under finance leases and hire purchase contracts at 30 June 2014 is $399,134 (2013: $202,369). Value of plant and equipment leased under finance leases and acquired through hire purchase contracts for 30 June 2014 financial year is nil (2013: $1,695,902). Leased assets and assets under hire purchase contracts are pledged as security for the related finance lease and hire purchase lease liabilities (refer to notes 23 and 26). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 87 20. MINE PROPERTY AND DEVELOPMENT (NON-CURRENT) Development areas at cost Mine site establishment Net carrying amount Mine site establishment Mine site establishment Accumulated amortisation Impairment Net carrying amount Mine capital development Accumulated amortisation Impairment Net carrying amount 2014 2013 71,215,821 71,215,821 69,355,370 69,355,370 28,343,367 35,750,677 (25,118,389) (27,485,306) - (4,322,330) 3,224,978 3,943,041 219,500,444 67,606,651 (138,866,046) (33,564,998) - (7,166,041) 80,634,398 26,875,612 Total mine properties and development 155,075,197 100,174,023 Movement in mine properties and development Development areas at cost At 1 July Additions Acquisition of subsidiary (refer to note 37) At 30 June Mine site establishment At 1 July net of accumulated amortisation Additions Transfer from capital work in progress (refer to note 19) Increase/(decrease) in rehabilitation provision Amortisation charge for the year At 30 June net of accumulated amortisation Mine capital development At 1 July net of accumulated amortisation Additions Acquisition of subsidiary (refer to note 37) Transfer from exploration and evaluation expenditure (refer to note 21) Amortisation charge for the year At 30 June net of accumulated amortisation 69,355,370 61,561,433 1,860,451 - 5,041,398 2,752,539 71,215,821 69,355,370 3,943,041 3,282,203 - 1,577,728 167,500 (2,463,291) 3,224,978 - 1,338,710 - (677,872) 3,943,041 26,875,612 22,236,993 24,400,954 53,634,299 9,925,005 - - 1,168,675 (24,276,467) (6,455,061) 80,634,398 26,875,612 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 88 21. EXPLORATION EXPENDITURE (NON-CURRENT) Exploration and evaluation costs carried forward in respect of mining areas of interest Pre-production areas At Cost Accumulated impairment Net carrying amount At 1 July net of accumulated impairment Additions Acquisition of subsidiary (refer to note 37) Transferred to mine capital development (refer to note 20) Adjustment to rehabilitation liability (refer to note 25) Expenditure written off At 30 June net of accumulated impairment 2014 2013 95,114,871 81,867,452 - - 95,114,871 81,867,452 81,867,452 10,361,690 - - 1,675,900 2,077,793 79,766,856 (1,168,675) 9,860,081 - (6,974,352) (484,422) 95,114,871 81,867,452 The ultimate recoupment of costs carried forward for exploration and evaluation phases is dependent on the successful development and commercial exploitation or sale of the respective mining areas. Amortisation of the costs carried forward for the development phase is not recognised pending the commencement of production. During the year a review was undertaken for each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. In assessing the carrying value of all of the Consolidated Entity’s projects certain expenditure on exploration and evaluation of mineral resources has not led to the discovery of commercially viable quantities of mineral resources. As a result exploration and evaluation expenditure of $6,974,352 (2013: $484,422) mainly relating to the Central Murchison Gold Project was written off to the statement of comprehensive income. 22. TRADE AND OTHER PAYABLES (CURRENT) Trade creditors (a) Sundry creditors and accruals (b) 2014 2013 12,919,506 20,144,968 2,617,809 8,490,461 33,064,474 11,108,270 (a) Trade creditors are non-interest bearing and generally on 30 day terms. (b) Sundry creditors and accruals are non-interest bearing and generally on 30 day terms. Due to the short term nature of these payables, their carrying value approximates their fair value. 23. INTEREST BEARING LOANS AND BORROWINGS (CURRENT) Lease liability Represents finance leases which have repayment terms of 36 months. 2014 2013 116,865 67,900 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 89 24. PROVISIONS (CURRENT) Provision for annual leave (a) Provision for fringe benefits tax payable (a) Provision for onerous lease (b) (a) The nature of the provisions are described in note 2(ad). (b) The nature of the provisions are described below in note 25. 25. PROVISIONS (NON-CURRENT) Provision for long service leave (a) Provision for onerous operating lease (b) Provision for rehabilitation (c) (a) Provision for long service leave The nature of the provisions are described in note 2(ad). (b) Provision for onerous lease 2014 2013 2,966,033 1,288,538 2,147 479,496 (2,222) - 3,447,676 1,286,316 2014 2013 2,448,772 1,078,865 79,290,472 82,818,109 758,250 - 6,113,412 6,871,662 On the acquisition of Alacer (refer to note 27(a)), a provision was recognised for the fact that the lease premiums on the operating lease were significantly higher than the market rate at acquisition. The provision has been calculated based on the difference between the market rate and the rate paid. The operating lease has a life of four years. (c) Provision for rehabilitation Environmental obligations associated with the retirement or disposal of mining properties and/or of exploration activities are recognised when the disturbance occurs and are based on the extent of the damage incurred. The provision is measured as the present value of the future expenditure. The rehabilitation liability is remeasured at each reporting period in line with the change in the time value of money (recognised as an interest expense in the statement of comprehensive income and an increase in the provision), and additional disturbances/change in the rehabilitation cost are recognised as additions/changes to the corresponding asset and rehabilitation liability. (d) Movements in provisions At 1 July 2013 Arising during the year Utilised Adjustment due to revised conditions Rehabilitation expenditure Unwind of discount Disposal of a subsidiary Acquisition of subsidiary (refer to note 37) At 30 June 2014 At 1 July 2012 Arising during the year Unwind of discount Acquisition of subsidiary (refer to note 37) At 30 June 2013 Onerous operating lease Long service leave Rehabilitation Total - - 758,250 6,113,412 1,690,522 537,967 6,871,662 2,228,489 (387,588) 9,860,081 (1,774) - 9,860,081 (1,774) 1,655,028 1,722,952 (1,256,727) (1,256,727) 62,382,485 64,260,510 - - - - - - (387,588) - - 67,924 - 1,878,025 1,558,361 2,448,772 79,290,472 83,297,605 - - - - - 438,200 320,050 - - 758,250 2,926,965 3,365,165 - 37,447 3,149,000 6,113,412 320,050 37,447 3,149,000 6,871,662 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 90 26. INTEREST BEARING LOANS AND BORROWINGS (NON-CURRENT) Lease liability 2014 2013 56,122 119,913 Represents finance leases which have repayment terms of 36 months from inception. The carrying amount of the Consolidated Entity’s non-current loans and borrowings approximate their fair value. Financing facilities available At reporting date, the following financing facilities were available: Total facilities - finance lease facility Facilities used at reporting date - finance lease facility Assets pledged as security: 172,987 187,813 172,987 187,813 The carrying amounts of assets pledged as security for current and non-current interest bearing liabilities are: Non-current Finance lease Plant and equipment Total non-current assets pledged as security Plant and equipment assets are pledged against lease liabilities for the term of the lease period. 27. ISSUED CAPITAL (a) Ordinary Shares Issued and fully paid (b) Movements in ordinary shares on issue At 1 July 2012 Acquistion of subsidiary (refer to note 37) Share issue costs At 30 June 2013 Issue share capital Share issue costs At 30 June 2014 (c) Terms and conditions of contributed equity 399,134 399,134 202,369 202,369 2014 2013 331,399,336 330,962,263 Number $ 1,316,663,257 335,102,853 - 279,086,186 51,940,942 (64,865) 1,651,766,110 330,962,263 3,620,000 - 1,655,386,110 444,500 (7,427) 331,399,336 Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholder meetings. In the event of winding up the Company the holders are entitled to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Effective 1 July 1998, the Corporations legislation in place abolished the concepts of authorised capital and par share values. Accordingly, the Parent does not have authorised capital nor par value in respect of its issued shares. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 91 27. ISSUED CAPITAL (CONTINUED) (d) Escrow Restrictions There are no current escrow restrictions on the issued capital of the Company. (e) Options on issue Unissued ordinary shares of the company under option at the date of this report are as follows: Type Unlisted* Unlisted** Unlisted* Total Expiry Date 1 November 2014 30 November 2014 25 March 2015 Exercise Price Number of options 21 cents 30 cents 44 cents 1,100,000 4,750,000 715,000 6,565,000 * The above options are exercisable at any time on or before the expiry date. ** These options were issued pursuant to the Metals X Limited Employee Option Scheme and can only be exercised pursuant to the scheme rules. Share options carry no right to dividends and no voting rights (f) Option conversions Date of option conversion 29 October 2013 25 November 2013 28 November 2013 30 November 2013 Total Number of options Price per option Expiry date Increase in contributed equity $ 400,000 2,000,000 100,000 250,000 2,750,000 13 cents 13 cents 13 cents 13 cents 30 November 2013 30 November 2013 30 November 2013 30 November 2013 52,000 260,000 13,000 32,500 357,500 28. ACCUMULATED LOSSES At 1 July Net profit in current period attributable to members of the parent entity At 30 June 2014 2013 (76,931,564) 37,451,737 (39,479,827) (85,603,878) 8,672,314 (76,931,564) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 92 29. RESERVES At 30 June 2012 Share based payments Share of change in equity of associate Fair value change in available-for-sale financial assets Tax effect on fair value change in available-for-sale financial assets Acquistion of subsidiary (refer to note 37) At 30 June 2013 Share based payments Share of change in equity of associate Fair value change in available-for-sale financial assets Tax effect on fair value change in available-for-sale financial assets Acquistion of subsidiary (refer to note 37) At 30 June 2014 Nature and purpose of reserves Option premium reserve Net unrealised gains reserve 18,728,928 - - - - 1,010,736 19,739,664 - - - - - 19,739,664 612,522 - (505,153) (107,369) - - - - - - - - - Total 19,341,450 - (505,153) (107,369) - 1,010,736 19,739,664 - - - - - 19,739,664 Net unrealised gains reserve This reserve records the movements in the fair value of available-for-sale investments, the movements in non-controlling interests and the share of changes in equity of associates Option premium reserve This reserve is used to record the value of options issued. The option premium reserve relates to the issue of: Details of issue Number of options Fair value per option Value Rights issue - capital raising cost Employee option scheme Employee option scheme Employee option scheme Employee option scheme Employee option scheme Employee option scheme Employee option scheme Employee option scheme Employee option scheme Employee option scheme Share-based payment - director Share-based payment - director Share-based payment - director Share-based payment - contractor Share-based payment - contractor Share-based payment - contractor Placement fee - capital raising cost Convertible notes equity portion Acquisition of a subsidiary Acquisition of a subsidiary Total 110,540,000 1,890,000 400,000 2,200,000 400,000 3,900,000 1,700,000 825,000 1,000,000 2,850,000 2,350,000 4,000,000 2,500,000 2,500,000 400,000 1,000,000 1,000,000 2,000,000 67,500,000 16,750,000 32,615,000 258,320,000 0.057 0.102 0.414 0.114 0.168 0.122 0.084 0.119 0.150 0.050 0.083 0.174 0.048 0.083 0.168 0.120 0.103 0.049 N/A 0.099 0.031 6,312,054 191,880 165,524 250,300 67,272 475,134 142,260 98,434 150,421 142,111 195,147 694,563 119,432 207,603 67,272 119,631 103,385 97,288 7,463,700 1,665,517 1,010,736 19,739,664 The options have been valued using a Black & Scholes model, which takes account of factors including the options exercise price, the volatility of the underlying share price, the risk-free interest rate, the market price of the underlying share at grant date and the expected life of the option. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 93 30. SHARE-BASED PAYMENTS (a) Recognised share-based payment expense The expense recognised for services received during the year is shown in the table below: 2014 2013 Expense arising from equity-settled share-based payments - - The share-based payment plan is described below. There have been no cancellations or modifications to the plan during 2014 and 2013. (b) Long Term Incentive Plan The Consolidated Entity has a Long term Incentive Plan (“LTIP”) for the granting of non-transferable options to senior executives and other staff members of the Consolidated Entity in accordance with guidelines established by the Board of the Company. The options issued under the LTIP will vest when the following conditions are met: i. ii. The LTIP has no direct performance requirements but has specified time restrictions on the exercise of options. The director or senior executive or other staff member continues to be employed by the Consolidated Entity on the first anniversary of the grant date or as determined by the Board of Directors. Other relevant terms and conditions applicable to the options granted under LTIP include: i. ii. iii. iv. v. vi. The options are issued for nil consideration; The options will not be quoted on the ASX; The exercise price of the options is equal to 120% of the weighted average closing sale price of the Company’s fully paid ordinary shares on ASX over the 5 trading days immediately preceding the day on which the Board resolves to offer that Option; Options vest after one year or as determined by the Board of Directors; Any options that are not exercised by the fourth anniversary of their grant date will lapse; The options will lapse after six months if a person ceases employment with the Consolidated Entity; vii. Upon exercise, these options will be settled in ordinary fully paid shares of the Company; and viii. The Board of Directors may alter, delete or add to the terms and conditions of the LTIP at any time. (c) Summary of options granted under the Long Term Incentive Plan The following table illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options issued under the LTIP. 2014 Number 2014 WAEP 2013 Number 2013 WAEP Outstanding at the beginning of the year Granted during the year Exercised during the year Lapsed/cancelled during the year Outstanding at the year end Exercisable at the year end 5,100,000 - (2,750,000) (100,000) 2,250,000 2,250,000 0.207 - 0.13 0.215 0.300 0.300 6,150,000 - - (1,050,000) 5,100,000 5,100,000 0.247 - - (0.443) 0.207 0.207 The outstanding balance as at 30 June 2014 is represented by the following table: Grant date Vesting date Expiry date Exercise price Options granted Options lapsed/ cancelled Options exercised Number of options at end of period On issue Vested 27 Nov 09 29 Nov 11 6 Jul 10 29 Nov 11 30 Nov 13 29 Nov 14 13 cents 30 cents 3,100,000 2,350,000 (350,000) (100,000) (2,750,000) - - 2,250,000 - 2,250,000 Total 5,450,000 (450,000) (2,750,000) 2,250,000 2,250,000 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 94 (d) Weighted average remaining contractual life The weighted average remaining contractual life for the share options outstanding as at 30 June 2014 is 0.42 years (2013: 0.87 years). (e) Range of exercise price The exercise price for options outstanding at the end of the year was $0.30 (2013: $0.13 - $0.30). As the range of prices is wide, refer to section (c) above for further information in assessing the number and timing of additional shares that may be issued and the cash that may be received upon exercise of those options. (f) Weighted average fair value The weighted average fair value of options granted during the year was nil (2013: nil). (g) Option pricing model The fair value of the equity-settled share options granted under the LTIP is estimated at the date of grant using a Black & Scholes model, which takes into account factors including the options exercise price, the volatility of the underlying share price, the risk-free interest rate, the market price of the underlying share at grant date and the expected life of the option. The following table gives the assumptions made in determining the fair value of the options granted: Grant date Expected Volatility (%) Risk-free interest rate (%) Expected life of options (yrs) Options exercise price ($) Share price at grant date ($) Fair value at grant date ($) 2014 Nil n/a n/a n/a n/a n/a n/a 2013 Nil n/a n/a n/a n/a n/a n/a 2012 29 November 2012 60% 3.15% 2.5 $0.30 $0.25 $0.083 The effects of early exercise have been incorporated into the calculations by using an expected life for the option that is shorter than the contractual life based on historical exercise behaviour, which is not necessarily indicative of exercise patterns that may occur in the future. The expected volatility was determined using a historical sample of the Company’s share price over a 12 month period. The resulting expected volatility therefore reflects the assumptions that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. (h) Directors options In addition to the LTIP, the Company has issued options to Directors. Other relevant terms and conditions applicable to the options granted to Directors include: i. ii. iii. iv. v. The options issued to Directors vest immediately; The option issue has no direct performance requirements; The options are issued for nil consideration; The options will not be quoted on the ASX; The exercise price of the options is equal to 120% of the weighted average closing sale price of the Company’s fully paid ordinary shares on ASX over the 20 trading days immediately preceding the day on which the members resolve to offer that Option; vi. Any options that are not exercised by the third anniversary of their grant date will lapse; and vii. Upon exercise, these options will be settled in ordinary fully paid shares of the Company. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 95 30. SHARE-BASED PAYMENTS (CONTINUED) (i) Summary of options granted to Directors The following table illustrates the number and weighted average (WAEP) of, and movements in, share options issued to Directors: 2014 Number 2014 WAEP 2013 Number 2013 WAEP Outstanding at the beginning of the year Granted during the year Exercised during the year Lapsed/cancelled during the year Outstanding at the year end Exercisable at the end of the year 2,500,000 - - - 2,500,000 2,500,000 0.300 - - - 0.300 0.300 2,500,000 - - - 2,500,000 2,500,000 0.300 - - - 0.300 0.300 The outstanding balance as at 30 June 2014 is represented by the following table: Grant date Vesting date Expiry date Exercise price Options granted Options lapsed/ cancelled Options exercised 29 Nov 11 29 Nov 11 29 Nov 14 30 cents 2,500,000 Total 2,500,000 - - Number of options at end of period On issue Vested 2,500,000 2,500,000 2,500,000 2,500,000 - - (j) Weighted average remaining contractual life The weighted average remaining contractual life for the share options outstanding as at 30 June 2014 is 0.42 years (2013: 1.42). (k) Range of exercise price The exercise price for options outstanding at the end of the year was $0.30 (2013: $0.30). (l) Weighted average fair value The weighted average fair value of options granted during the year was nil (2013: nil). (m) Contractors options In addition to the LTIP, the Company has issued options to Contractors. Other relevant terms and conditions applicable to the options granted to Contractors include: i. ii. iii. iv. v. The options issued to Contractors vest immediately; The option issue has no direct performance requirements; The options are issued for nil consideration; The options will not be quoted on the ASX; The exercise price of the options is equal to 120% of the weighted average closing sale price of the Company’s fully paid ordinary shares on ASX over the 5 trading days immediately preceding the day on which the members resolve to offer that Option; vi. Any options that are not exercised by the expiry date as determined by the Directors at their grant date will lapse; and vii. Upon exercise, these options will be settled in ordinary fully paid shares of the Company. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 96 (n) Summary of options granted to Contractors The following table illustrates the number and weighted average (WAEP) of, and movements in, share options issued to Contractors: 2014 Number 2014 WAEP 2013 Number 2013 WAEP Outstanding at the beginning of the year Granted during the year Exercised during the year Lapsed/cancelled during the year Outstanding at the year end Exercisable at the end of the year 1,000,000 - - (1,000,000) - - The outstanding balance as at 30 June 2014 is represented by the following table: Grant date Vesting date Expiry date Exercise price Options granted Total Options lapsed/ cancelled - 0.320 - - (0.320) 1,000,000 - - - 1,000,000 1,000,000 0.320 - - - 0.320 0.320 Options exercised Number of options at end of period On issue Vested - - - - - - (o) Weighted average remaining contractual life The weighted average remaining contractual life for the share options outstanding as at 30 June 2014 is nil (2013: 0.42). (p) Range of exercise price The exercise price for options outstanding at the end of the year was nil (2013: $0.32). (q) Weighted average fair value The weighted average fair value of options granted during the year was nil (2013: nil). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 97 31. COMMITMENTS (a) Capital commitments Commitments relating to jointly controlled assets At 30 June 2014 the Consolidated Entity has capital commitments that relate principally to the purchase and maintenance of plant and equipment for its mining operations. Capital expenditure commitments Estimated capital expenditure contracted for at reporting date, but not recognised as liabilities in respect of the Bluestone Mines Tasmania Joint Venture - Within one year (b) Operating lease commitments - Company as lessee 2014 2013 431,880 454,301 The Company has entered into commercial property leases on office rental and remote area residential accommodation. The Company has entered into commercial leases on office equipment. These operating leases have an average life of between one month and four years with renewal options included in the contracts. The Company also has commercial leases over the tenements in which the mining operations are located. These tenement leases have a life of between six months and twenty one years. In order to maintain current rights to explore and mine the tenements the Consolidated Entity is required to perform minimum exploration work to meet the expenditure requirements specified by the relevant state governing body. There are no restrictions placed on the lessee by entering into these contracts. The operating lease commitments include Joint Venture commitments as disclosed in note 35. Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows: (i) Property leases as lessee: - Within one year - After one year but not more than five years (ii) Equipment leases: - Within one year - After one year but not more than five years (iii) Mineral tenement leases: - Within one year - After one year but not more than five years - After more than five years 1,649,914 3,294,437 4,944,351 270,415 254,302 524,717 34,207 42,359 76,566 4,990,395 14,909,580 40,399,769 60,299,744 9,984 7,790 17,774 925,208 2,512,278 4,387,251 7,824,737 (c) Operating lease commitments - Company as lessor The Company has entered into a commercial sub-lease on the above mentioned office space. (i) Future minimum rentals receivable under non-cancellable operating leases as at 30 June are as follows: Property leases as lessor: - Within one year - After one year but not more than five years 133,379 - 133,379 3,966 - 3,966 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 98 (d) Finance lease and hire purchase commitments The Company has finance leases and hire purchase contracts for various items of plant and machinery. The leases do have terms of renewal but no escalation clauses. Renewals are at the option of the specific entity that holds the lease. The finance and hire purchase contracts have an average term of 36 months with the right to purchase the asset at the completion of the lease term for a pre-agreed amount. Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the minimum lease payments are as follows: Within one year After one year but not more than five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments Within one year After one year but not more than five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments Included in the financial statements as: Current interest-bearing loans and borrowings (note 23) Non-current interest-bearing loans and borrowings (note 26) Total included in interest-bearing loans and borrowings The weighted average interest rate of leases for the Company is 7.35% (2013: 6.29%). 2014 Minimum lease payments Present value of lease payments 119,448 64,550 183,998 (11,011) 172,987 116,865 56,122 172,987 - 172,987 2013 Minimum lease payments Present value of lease payments 73,369 121,969 195,338 (7,525) 187,813 67,900 119,913 187,813 - 187,813 2014 2013 116,865 56,122 172,987 67,900 119,913 187,813 (e) Other commitments The Consolidated Entity has obligations for various expenditures such as royalties, production based payments and exploration expenditure. Such expenditures are predominantly related to the earning of revenue in the ordinary course of business. The details of these obligations are not provided. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 99 32. CONTINGENT ASSETS AND LIABILITIES (i) Bank guarantees The Consolidated Entity has a number of bank guarantees in favour of various government authorities and service providers. The bank guarantees primarily relate to environmental and rehabilitation bonds at the various projects. The total amount of these guarantees at the reporting date is $6,481,192 (2013: $6,885,885). These bank guarantees are fully secured by performance bonds (refer to note 15). (ii) Clawback agreement AngloGold Ashanti holds the right to earn back a 75% interest in any individual resource defined within the tenements acquired from AngloGold by Westgold (with the exception of Rover 1 and Explorer 108), under specific terms, conditions, specified payments and performance hurdles. 33. EVENTS AFTER THE BALANCE SHEET DATE On 4 August 2014 the Company announced that it had entered into an agreement with Southern Gold Limited (“Southern”) on the terms of a mining and profit sharing agreement to enable Southern’s Cannon Gold Project to be mined and processed at the Company’s processing plant at SKO. 34. AUDITOR’S REMUNERATION Amounts received or due and receivable by Ernst & Young (Australia) for: 2014 2013 An audit or review of financial reports of the entity and any other entity within the Consolidated Entity 393,090 228,345 Other services in relation to the entity and any other entity in the Consolidated Entity: - tax compliance - stamp duty compliance Total auditor remuneration 129,800 40,780 563,670 77,860 38,181 344,386 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 100 35. INTEREST IN A JOINTLY CONTROLLED OPERATION The Consolidated Entity’s interest in the assets and liabilities of joint operations are included in the consolidated statement of financial position. RENISON TIN PROJECT Subsidiary Bluestone Mines Tasmania Pty Ltd has a 50% interest in the Renison Tin Project. The Consolidated Entity is entitled to 50% of the production (a) Share of joint venture’s statement of financial position Current assets Non-current assets Current liabilities Non-current liabilities Equity (b) Share of joint venture’s statement of financial position Revenue Cost of sales Finance costs Profit before tax Income tax benefit (expense) Profit for the year (c) Commitments relating to the jointly controlled assets Share of capital commitments (refer to note 31(a)) Share of operating lease commitments (refer to note 31(b)) 2014 2013 31,327,700 44,885,500 (7,330,477) (12,246,315) 56,636,408 26,397,984 39,889,671 (8,754,317) (2,179,858) 55,353,480 75,785,336 (64,916,384) (40,507) 10,828,445 21,321,854 32,150,299 65,970,052 (59,286,529) (266,471) 6,417,052 (10,825,114) (4,408,062) 431,880 454,301 Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows: (i) Property leases as lessee: - Within one year (ii) Equipment leases: - Within one year - After one year but not more than five years (iii) Mineral tenement leases: - Within one year - After one year but not more than five years - After more than five years 3,551 3,551 11,604 21,984 33,588 182,454 198,119 - 380,573 884 884 5,735 - 5,735 202,776 413,906 - 616,682 Impairment No assets employed in the jointly controlled operation were impaired during the year (2013: nil). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 101 35. INTEREST IN A JOINTLY CONTROLLED OPERATION (CONTINUED) WARRUMPI EXPLORATION PROJECT Subsidiary Castile Resources Pty Ltd has earned a 51% interest in the Warumpi exploration project in the Northern Territory and is currently undertaking an exploration program to earn up to 80% interest in the project. (a) Share of joint venture’s statement of financial position Non-current assets Equity (b) Share of joint venture’s statement of financial position Exploration and evaluation expenditure written off Loss before tax Income tax expense Loss for the year (c) Commitments relating to the jointly controlled assets Share of operating lease commitments (refer to note 31(b)) 2014 1,105,041 1,105,041 2013 909,813 909,813 (407,455) (407,455) - (407,455) - - - - Future minimum rentals payable under non-cancellable operating leases as at 30 June are as follows: (i) Mineral tenement leases: - Within one year - After one year but not more than five years - After more than five years 102,063 69,957 - 172,020 24,855 34,778 - 59,633 Impairment Exploration and evaluation expenditure of $407,455 in relation the joint operation was written-off during the year (2013: nil). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 102 36. SEGMENTS For management purposes, the Consolidated entity is organised into operating segments determined by the similarity of the mineral being mined or explored, as these are the sources of the Consolidated Entity’s major risks and have the most effect on rates of return The Consolidated Entity comprises the following reportable segments: • • • Tin Projects: Mining, treatment and marketing of tin concentrate. Nickel Projects: Exploration and development of nickel assets. Gold Projects: Mining, treatment, exploration and development of gold assets. Executive management monitors the operating results of its operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. However, consolidated financing (including finance costs and finance income) and income taxes are managed on a consolidated basis and are not allocated to operating segments The Consolidated Entity does not have any inter-entity sales. All other adjustments and eliminations are part of the detailed reconciliations presented further below. The following table presents revenue and profit information for reportable segments for the years ended 30 June 2014 and 30 June 2013. Year ended 30 June 2014 Revenue External customers Other revenue Total revenue Tin Projects Nickel Projects Gold Projects Adjustments and eliminations Total 75,643,560 - 75,643,560 - - - 161,051,109 - 161,051,109 - 1,905,163 1,905,163 236,694,669 1,905,163 238,599,832 Results Depreciation and amortisation Exploration and evaluation expenditure written off (8,429,069) (90,766) (25,469,473) (308,651) (34,297,959) (173,863) (279,065) (6,521,424) - (6,974,352) Profit before income tax 11,136,219 (90,787) 43,095,418 1,915,698 56,056,548 Total assets Total liabilities Other disclosures Capital expenditure 76,213,200 70,287,679 226,999,091 57,066,868 430,566,838 (9,654,364) (118,930) (104,937,268) (4,792,684) (119,503,246) (13,431,753) (3,332,884) (31,953,066) (14,239) (48,731,942) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 103 36. SEGMENTS (CONTINUED) Year ended 30 June 2013 Revenue External customers Other revenue Total revenue Tin Projects Nickel Projects Gold Projects Adjustments and eliminations Total 65,915,677 - 65,915,677 - - - - - - - 2,800,695 2,800,695 65,915,677 2,800,695 68,716,372 Results Depreciation and amortisation Exploration and evaluation expenditure written off (10,851,104) (103,258) (175,907) (42,951) (11,173,220) (75,434) - (408,988) - (484,422) Profit before income tax 6,866,245 3,051 93,162 3,431,647 10,394,105 Total assets Total liabilities Other disclosures Capital expenditure 67,768,142 67,331,291 89,035,653 66,368,988 290,504,074 (11,886,378) (634,503) (3,632,366) (3,300,814) (19,454,061) (11,786,378) (4,878,513) (2,479,323) (932,985) (20,077,199) Adjustments, eliminations and corporate Finance income and costs, fair value gains and losses on financial assets and share of losses of associates are not allocated to individual segments as the underlying instruments are managed on a Consolidated Entity basis. Current taxes, deferred taxes and certain financial assets and liabilities are not allocated to those segments as they are also managed on a Consolidated Entity basis. Capital expenditure consists of additions of property, plant and equipment, mine properties and development and exploration and evaluation expenditure including assets from the acquisition of subsidiaries. Corporate charges comprise non-segmental expenses such as head office expenses and interest. Corporate charges are not allocated to operating segments. (a) Reconciliation of profit/(loss) 2014 2013 Profit before income tax Finance costs Corporate expenses Reversal of impairment/(impairment) of assets Share of loss of associates Exploration and evaluation expenditure written off Fair value gain on financial instruments Impairment loss on available-for-sale financial assets Net gains on disposal of available-for-sale investments Net gain on disposal of assets Total consolidated profit/(loss) before income tax 56,056,548 (1,916,448) (9,151,386) - - (6,974,352) (70,073) (1,622,700) - 1,130,148 37,451,737 10,394,105 (357,129) (9,931,664) 1,070,664 (1,559,556) (484,422) (378,916) (6,608,070) 6,022,731 (127,199) (1,959,456) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 104 (b) Reconciliation of assets Segment operating assets Available-for-sale assets Derivative assets Total consolidated operating assets (c) Reconciliation of liabilities Segment operating liabilities Total consolidated operating liabilities (d) Segment revenue from external customers Other revenue Total segment revenue 2014 2013 430,566,838 595,581 - 431,162,419 290,504,074 2,650,277 70,073 293,224,424 119,503,246 119,503,246 19,454,061 19,454,061 236,694,669 1,905,163 238,599,832 65,915,677 2,800,695 68,716,372 Revenue from external customers by geographical locations is detailed below. Revenue is attributable to geographical location based on the location of the customers. The Company does not have external revenues from external customers that are attributable to any foreign country other than as shown. Australia South East Asia Total revenue 161,448,538 75,246,131 236,694,669 - 65,915,677 65,915,677 The Consolidated Entity has two customers to which it provides tin, copper and gold. The Consolidated Entity sends its tin and copper concentrates to one South East Asian customer that accounts for 32% of external revenue (2013: 100%). The Consolidated Entity sells its gold to one Australian customer that accounts for 68% of external revenue (2013: nil). (e) Segment non-current assets, excluding financial assets, are all located in Australia NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 105 37. BUSINESS COMBINATION Acquisitions in 2014 (a) Acquisition of Alacer Gold Pty Ltd On 29 October 2013 Metals X completed the acquisition of 100% of the shares of Alacer Gold Pty Ltd (“Alacer”), a subsidiary of publicly listed company Alacer Gold Corp. which owns operating gold projects in Western Australia. The consideration for the acquisition was $44,000,000. The acquisition has been accounted for using the acquisition method. Assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities of Alacer Gold Pty Ltd as at the date of acquisition are: Assets Cash and cash equivalents Trade and other receivables Inventories Other assets Property, plant and equipment Mine properties and development costs Liabilities Trade and other payables Provisions Purchase consideration transferred Analysis of cash flows on acquisition: Cash paid Net cash acquired with the subsidiary (included in cash flows from investing activities) Net cash outflow Fair value recognised on acquisition 14,470,399 2,156,645 16,266,414 576,780 34,175,261 53,634,299 121,279,798 25,831,035 51,448,763 77,279,798 44,000,000 (44,000,000) 14,470,399 (29,529,601) From the date of acquisition, Alacer has contributed $164,551,130 of revenue and $27,228,067 to the net profit before tax of the Consolidated Entity. If the acquisition had occurred on 1 July 2013, consolidated revenue and consolidated profit before income tax for the period ended 30 June 2014 would have been $209,204,828 and $52,557,079 respectively. The fair value of the trade receivables amounts to $2,156,645, which is equal to the gross amount of trade receivables. None of the trade receivables have been impaired and it is expected that the full contractual amount can be collected. Transaction costs relating to stamp duty, external legal fees, technical fees and due diligence costs of $2,377,088 have been expensed and are included in the statement of comprehensive income. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 106 (b) Acquisition of Meekatharra Gold Operation On 27 June 2014 Metals X completed the acquisition of the assets of GMK Exploration Pty Ltd (“GMKE”) from GMKE’s Administrator. The assets comprise the fully refurbished processing plant, other supporting infrastructure and tenements of the Meekatharra Gold Operation which is currently under care and maintenance in Western Australia. The consideration for the acquisition was $9,400,000 and 24,000,000 Reed Resources Limited shares with a fair value of $432,000. The acquisition has been accounted for using the acquisition method. Assets acquired and liabilities assumed The provisional fair values of the identifiable assets and liabilities as at the date of acquisition are: Assets Property, plant and equipment Exploration and evaluation expenditure Liabilities Provisions Cash paid Fair value of Reed Resources Limited shares Purchase consideration transferred Analysis of cash flows on acquisition: Cash paid Net cash outflow Fair value recognised on acquisition 22,680,309 1,950,527 24,630,836 14,798,836 14,798,836 9,400,000 432,000 9,832,000 9,400,000 9,400,000 From the date of acquisition, the assets have not contributed any revenue or net profit before tax of the Consolidated Entity. Transaction costs relating to stamp duty, external legal fees, technical fees and due diligence costs of $507,057 have been expensed and are included in the statement of comprehensive income. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 107 37. BUSINESS COMBINATION (CONTINUED) Acquisitions in 2013 (a) Acquisition of Westgold Resources Limited On 14 May 2012 Metals X announced a merger by scheme of arrangement to acquire all of the issued share capital of Westgold Resources Limited, a publicly listed Australian company which owns gold projects in Western Australia and the Northern Territory. The consideration for the merger was on a scrip for scrip basis, being 11 new Metals X shares for every 10 Westgold shares held and 11 new Metals X options for every 10 Westgold options held. The merger was successful and resulted in Metals X increasing its ownership of Westgold from 26.98% to 100%. The completion date of the acquisition was 17 October 2012. In the period from acquisition to 30 June 2013 Westgold contributed interest income of $89,789 and a loss of $1,370,011 to the Consolidated Entity’s results. If the acquisition had occurred on 1 July 2012, consolidated revenue and consolidated profit before income tax for the period ended 30 June 2013 would have been $171,822 and $3,117,321 respectively. The following summarises the major classes of consideration transferred and the recognised amounts of assets acquired and liabilities assumed at the acquisition date. Purchase consideration Equity instruments issued at fair value (335,102,853 ordinary shares) Replacement options issued 51,940,942 1,010,736 52,951,678 Equity instruments issued The fair value of the ordinary shares issued was based on the listed share price of the Company at 17 October 2012 of $0.155 per share. Replacement options issued The terms of the acquisition required the Company to issue replacement options to the Westgold Resources Limited option holders. The terms and conditions of the replacement options are as follows: Grant Date 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 Vesting Date 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 17 Oct 2012 Expiry Date 8 Nov 2012 25 Mar 2015 30 Nov 2012 7 Jan 2013 30 Nov 2013 31 Dec 2013 11 Jan 2014 24 Aug 2014 3 Jul 2014 15 Aug 2014 1 Nov 2014 Exercise Price $0.41 $0.44 $0.19 $0.18 $0.19 $0.18 $0.29 $0.20 $0.26 $0.26 $0.21 Number 275,000 715,000 2,750,000 1,100,000 550,000 19,250,000 1,127,500 440,000 2,007,500 3,300,000 1,100,000 The market based value of the new options at the acquisition date of 17 October 2012 was $1,010,736. All options are vested and exercisable immediately. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 108 Assets acquired and liabilities assumed The provisional fair values of the identifiable assets and liabilities of Westgold Resources Limited as at the date of acquisition are: Assets Cash and cash equivalents Trade and other receivables Other assets Other financial assets Property, plant and equipment Mine properties and development costs Exploration and evaluation expenditure Liabilities Trade and other payables Provisions Deferred tax liabilities Total identifiable assets at fair value Purchase consideration Fair value of existing interest in acquiree Analysis of cash flows on acquisition: Net cash acquired with the subsidiary (included in cash flows from investing activities) Net cash flow on acquisition Fair value recognised on acquisition 1,126,934 147,436 17,784 3,149,000 1,020,580 2,752,539 79,766,856 87,981,129 3,805,023 3,149,000 10,631,769 17,585,792 70,395,337 52,951,678 17,443,659 70,395,337 1,126,934 1,126,934 Transaction costs relating to stamp duty, external legal fees, technical fees and due diligence costs of $3,058,236 have been expensed and are included in administrative expenses. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 109 38. KEY MANAGEMENT PERSONNEL (a) Details of Key Management Personnel (i) Non-Executive Directors PJ Newton PM Cmrlec AC Ferguson SD Heggen X Penggen Y Zhang (ii) Executive Directors Non-Executive Chairman Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Alternate for Mr Xie Penggen PG Cook WS Hallam CEO & Executive Director Executive Director (iii) Other Executives (KMPs) RD Cook AH King PD Hucker MP Poepjes JW Russell FJ Van Maanen General Manager - Tin Operations General Manager - Tin Operations Chief Operating Officer Chief Mining Engineer Chief Geologist CFO & Company Secretary Appointed 14 December 2012 23 July 2013 10 May 2012 25 October 2012 9 February 2012 3 October 2007 Appointed 23 July 2004 1 March 2005 Appointed 22 April 2010 24 February 2014 17 October 2012 8 August 2011 17 October 2012 1 July 2005 Resigned - - - - - - Resigned - - Resigned 3 January 2014 - - - - - There are no other changes of the key management personnel after the reporting date and the date the financial report was authorised for issue. (b) Loans to Key Management Personnel There were no loans to key management personnel during the current or previous financial year. (c) Other transactions and balances with Key Management Personnel PG Cook and WS Hallam were Directors of Westgold in 2013, which was charged $15,260 for director’s fees. PG Cook and WS Hallam are Directors of Aziana. FJ Van Maanen was the Company Secretary of Aziana in 2013. The Consolidated Entity provided accounting, secretarial and administrative services at cost to Aziana. In the current period $164,572 (2013: $86,945) has been charged to Aziana for these company secretarial and director’s fees. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 110 39. RELATED PARTY DISCLOSURES (a) Subsidiaries The consolidated financial statements include the financial statements of Metals X Limited and the subsidiaries listed in the following table: Name Country of incorporation Ownership Interest 2014 2013 Bluestone Australia Pty Ltd Metals Exploration Pty Ltd Westgold Resources Pty Ltd Mad Metals Pty Ltd * Chinggis Metals Pty Ltd * Subsidiary Companies of Metals Exploration Pty Ltd Austral Nickel Pty Ltd Hinckley Range Pty Ltd Metex Nickel Pty Ltd Subsidiary companies of Bluestone Australia Pty Ltd Bluestone Mines Tasmania Pty Ltd Bluestone Nominees Pty Ltd ** Subsidiary companies of Westgold Resources Pty Ltd Castile Resources Pty Ltd Aragon Resources Pty Ltd Fulcrum Resources Pty Ltd Big Bell Gold Operations Pty Ltd Hill 51 Pty Ltd *** Avoca Resources Pty Ltd *** Avoca Mining Pty Ltd *** HBJ Minerals Pty Ltd *** Dioro Exploration NL *** Hampton Gold Mining Areas Limited *** Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia United Kingdom 100% 100% 100% 100% 100% 100% 100% 100% 100% - 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - - - - - - * Mad Metals Pty Ltd and Chinggis Metals Pty Ltd were deregistered on 28 April 2014 ** Bluestone Nominees Pty Ltd (Collingwood Tin Project) was sold on 30 April 2014. *** Entities acquired from Alacer Gold Corp. (refer to note 37(a)). (b) Ultimate parent Metals X Limited is the ultimate parent entity. (c) Key management personnel Details relating to key management personnel, including remuneration paid, are included in note 38. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 111 39. RELATED PARTY DISCLOSURES (CONTINUED) (d) Transactions with related parties 2014 2013 (i) Jointly controlled assets Amounts charged by Bluestone Australia Pty Ltd to the joint operation of Bluestone Mines Tasmania Joint Venture for services provided * 121,905 646,340 (ii) Associates Amounts charged by Bluestone Australia Pty Ltd to Aziana Ltd for services provided ** Amounts charged by Bluestone Australia Pty Ltd to Westgold Resources Ltd for services provided *** 309,227 351,828 - 125,293 * Subsidiary Bluestone Mines Tasmania Pty Ltd has a 50% joint venture interest in the unincorporated Bluestone Mines Tasmania Joint Venture. ** The Company has a 13.73% interest in Aziana Limited (2013: 13.73%). *** The Company acquired Westgold Resources Limited in 2013 and had an interest of 26.98% in the previous year (refer to note 37). 40. INFORMATION RELATING TO METALS X LIMITED (“THE PARENT ENTITY”) Current assets Total assets Current Liabilities Total Liabilities Issued capital Accumulated losses Option premium reserve Other reserves Total Equity Loss of the parent entity Total comprehensive loss of the parent entity 2014 2013 51,077,828 242,494,262 3,022,995 3,022,995 41,549,376 306,386,181 2,127,192 2,127,192 340,679,336 (120,947,733) 19,739,664 - 239,471,267 340,242,263 (55,722,938) 19,739,664 - 304,258,989 (65,224,795) (65,224,795) (18,442,421) (5,834,942) Guarantees entered into by the parent entity in relation to the debts of its subsidiaries. Pursuant to Class Order 98/1418, Metals X and its wholly owned subsidiaries (refer to note 39(a)) entered into a deed of cross guarantee on 11 November 2013. The effect of the deed is that Metals X has guaranteed to pay any deficiency in the event of winding up of any controlled entity or if they do not meet their obligations under the terms of any debt subject to the guarantee. The controlled entities have given a similar guarantee in the event that Metals X is wound up or if it does not meet its obligations under the terms of any debt subject to the guarantee. The statement of financial position and statement of comprehensive income for the closed group is not materially different to the Consolidated Entity’s statement of financial position and statement of comprehensive income. Contingent liabilities of the parent entity. Contractual commitments by the parent entity for the acquisition of property, plant or equipment. Nil Nil NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2014 112 DIRECTORS’ DECLARATION In accordance with a resolution of the Directors of Metals X Limited, I state that: In the opinion of the Directors: a. the financial statements and notes of the Company and of the Consolidated Entity are in accordance with the Corporations Act 2001, including: i. ii. giving a true and fair view of the Company’s and the Consolidated Entity’s financial position as at 30 June 2014 and of their performance for the year ended on that date; and complying with the Australian Accounting Standards (including the Australian Accounting Interpretations) and Corporations Regulations 2001; and the financial statements and notes also comply with International Financial Reporting Standards as disclosed in note 2(b) and; there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and this declaration has been made after receiving the declarations required to be made to the Directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2014. b. c. d. On behalf of the Board. PG Cook CEO & Executive Director Perth, 26 August 2014 DIRECTOR’S DECLARATION 113 INDEPENDENT AUDIT REPORT 114 INDEPENDENT AUDIT REPORT INDEPENDENT AUDIT REPORT INDEPENDENT AUDIT REPORT 115 SECURITY HOLDER INFORMATION AS AT 22 SEPTEMBER 2014 (a) Top 20 Quoted Shareholders Sun Hung Kai Inv Svcs Ltd Jinchuan Grp Ltd Sun Hung Kai Inv Svcs Ltd National Nom Ltd J P Morgan Nom Aust Ltd HSBC Custody Nom Aust Ltd Bell Potter Nom Ltd All-States Finance Pl HSBC Custody Nom Aust Ltd Farleigh Richard Ajava Hldgs Pl Citicorp Nom Pl Cook Peter Gerard Sun Hung Kai Inv Svcs Ltd Western Bridge Pl BNP Paribas Noms Pl Ramco Inv Pl Oaksouth Pl Cook Joan Christine HSBC Custody Nom Aust Ltd Total (b) Distribution of quoted ordinary shares Size of parcel 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 - 9,999,999 Total % 15.65 10.63 8.39 7.67 5.20 4.63 3.80 3.27 2.64 2.47 2.42 1.30 1.30 0.80 0.68 0.59 0.54 0.50 0.43 0.38 73.29 Number of shares 259,130,281 176,000,000 139,000,000 126,953,839 86,134,721 76,688,512 62,920,899 54,100,000 43,718,997 40,914,065 40,110,000 21,587,137 21,550,000 13,265,866 11,335,928 9,707,904 9,000,000 8,265,000 7,056,200 6,314,483 1,213,753,832 Number of share holders Number of shares 138 671 999 2,797 690 5,295 14,978 2,400,214 8,010,032 97,972,725 1,547,428,161 1,655,826,110 (c) Number of holders with less than a marketable parcel of ordinary shares 100,001 - 9,999,999 251 202,484 (d) Substantial Shareholders Apac Resources Limited Jinchuan Group Limited % 23.99 10.63 Number of shares 397,130,281 176,000,000 SECURITY HOLDER INFORMATION AS AT 22 SEPTEMBER 2014 116 (e) Voting Rights The voting rights for each class of security on issue are: Ordinary fully paid shares Each ordinary shareholder is entitled to one vote for each share held. Options The holders of options have no rights to vote at a general meeting of the company. (f) Unquoted Equity Securities Number of Options Exercise Price 1,100,000 4,750,000 715,000 21 cents 30 cents 44 cents Expiry Date 01/11/2014 30/11/2014 25/03/2015 Number holders 1 11 5 SECURITY HOLDER INFORMATION AS AT 22 SEPTEMBER 2014 117 TABLES OF MINERAL RESOURCES AND ORE RESERVES TIN DIVISION MINERAL RESOURCES ESTIMATES CONSOLIDATED SUMMARY & ANNUAL COMPARISON (Calculated as at 30 June 2014) Mineral Resources Tin Copper Project Tonnes (Kt) Grade (%Sn) Sn Metal (Kt) Tonnes (Kt) Grade (%Cu) Cu Metal (Kt) As at 30 June 2013 Renison Bell Mt Bischoff Rentails Collingwood 10,059 1,667 20,598 702 33,026 1.55% 0.54% 0.45% 1.49% 0.81% Mining Depletion/Sales during year Renison Bell Mt Bischoff Rentails Collingwood 610 - - 702 1,312 1.49% - - 1.49% 1.49% Resource Additions during year Renison Bell Mt Bischoff Rentails Collingwood Subtotal 1,663 - 594 - 2,257 As at 30 June 2014 Renison Bell Mt Bischoff Rentails Collingwood Total 11,111 1,667 21,192 - 33,970 1.70% - 0.36% - 1.35% 1.58% 0.54% 0.45% - 0.82% 156 9 93 10 268 10 - - 10 20 29 - 2 - 31 175 9 95 - 279 7,530 - 20,598 - 28,128 610 - - - 610 3,091 - 594 - 3,685 10,011 - 21,192 - 31,203 0.34% - 0.21% - 0.25% 0.29% - - - 0.29% 0.33% - 0.16% - 0.30% 0.34% 0.00% 0.21% - 0.25% 26 - 44 - 70 2 - - - 2 10 - 1 - 11 34 - 45 - 79 Note: Renison Bell, Mt Bischoff and Rentails are 50% owned by Metals X. Collingwood was sold during the year by Metals X. 118 TABLES OF MINERAL RESOURCES AND ORE RESERVES TIN DIVISION MINING RESERVES ESTIMATE CONSOLIDATED SUMMARY & ANNUAL COMPARISON Mining Reserves are a subset of the Mineral Resource Estimates Ore Reserves Tin Copper Project Tonnes (Kt) Grade (%Sn) Sn Metal (Kt) Tonnes (Kt) Grade (%Cu) Cu Metal (Kt) As at 30 June 2013 Renison Bell Mt Bischoff Rentails Collingwood 4,137 - 19,757 - 23,894 1.28% 0.00% 0.45% - 0.59% Mining Depletion/Sales during year Renison Bell Mt Bischoff Rentails Collingwood 610 - - - 610 1.49% - - - 1.49% Resource Additions during year Renison Bell Mt Bischoff Rentails Collingwood Subtotal 2,384 - 594 - 2,978 As at 30 June 2014 Renison Bell Mt Bischoff Rentails Collingwood Total 5,911 - 20,351 - 26,262 1.55% - 0.48% - 1.33% 1.37% 0.00% 0.45% - 0.66% 53 - 89 - 142 9 - - - 9 37 - 3 - 40 81 - 91 - 172 3,817 - 19,757 - 23,574 610 - - - 610 2,556 - 594 - 3,150 5,763 - 20,351 - 26,114 0.30% - 0.21% - 0.23% 0.29% - - - 0.29% 0.17% - 0.25% - 0.19% 0.24% 0.00% 0.21% - 0.22% 12 - 42 - 54 2 - - - 2 4 - 2 - 6 14 - 44 - 58 Note: Renison Bell, Mt Bischoff and Rentails are 50% owned by Metals X. Collingwood was sold during the year by Metals X. The geographic region for Tin Reserves in Australia. TABLES OF MINERAL RESOURCES AND ORE RESERVES 119 GOLD DIVISION MINERAL RESOURCES ESTIMATES CONSOLIDATED SUMMARY & ANNUAL COMPARISON (Calculated as at 30 June 2014) Mineral Resources - Gold (Au) Project As at 30 June 2013 CMGP HGO SKO Kt 62,868 - - 62,868 Mining Depletion/Sales during year - CMGP 1,089 HGO 424 SKO 1,513 Resource Additions during year CMGP* HGO SKO 73 14,396 50,793 65,262 As at 30 June 2014 CMGP* HGO SKO 62,941 13,307 50,368 126,617 * Excludes Meekatharra Gold Operations. Grade 2.48 - - 2.48 - 4.95 2.13 4.16 2.38 3.03 1.99 2.22 2.48 2.88 1.98 2.33 Koz Metal 5,014 - - 5,014 - 173 29 202 6 1,404 3,243 4,653 5,020 1,231 3,214 9,465 120 TABLES OF MINERAL RESOURCES AND ORE RESERVES GOLD DIVISION MINING RESERVES ESTIMATES CONSOLIDATED SUMMARY & ANNUAL COMPARISON Mining Reserves are a subset of the Mineral Resource Estimate Ore Reserves - Gold (Au) Grade Kt Project As at 30 June 2013 CMGP HGO SKO 15,458 - - 15,458 Mining Depletion/Sales during year - CMGP 1,089 HGO 424 SKO 1,513 Resource Additions during year CMGP* HGO SKO - 5,627 1,384 7,011 As at 30 June 2014 CMGP* HGO SKO 15,458 4,538 960 20,956 * Excludes Meekatharra Gold Operations. 2.36 - - 2.36 - 4.95 2.13 4.16 - 3.92 1.18 3.37 2.36 3.67 0.76 2.57 Koz Metal 1,174 - - 1,174 - 173 29 202 - 708 52 761 1,174 535 23 1,732 TABLES OF MINERAL RESOURCES AND ORE RESERVES 121 TENNANT CREEK –ROVER 1 PROJECT MINERAL RESOURCES ESTIMATES CONSOLIDATED SUMMARY & ANNUAL COMPARISON (Calculated as at 30 June 2014) JORC Category Measured Indicated Inferred Total Gold Kt Grade - 2,741 4,073 6,814 - 2.42 1.27 1.73 Koz Metal - 213 168 381 Copper Grade - Kt - 2,741 1.42% 4,073 1.06% 6,814 1.20% Kt Metal - 59 52 112 Bismuth Kt - Grade - 2,741 0.18% 4,073 0.11% 6,814 0.14% Kt Metal - 5 4 9 Cobalt Grade - Kt - 2,741 0.04% 4,073 0.08% 6,814 0.06% Kt Metal - 1 3 4 Note: There were no additions or depletions during the year. The geographic region for Gold Resources and Reserves is Australia. NICKEL DIVISION MINERAL RESOURCES ESTIMATES CONSOLIDATED SUMMARY & ANNUAL COMPARISON (Calculated as at 30 June 2014) Kt JORC Category Wingellina Project Measured Indicated Inferred Subtotal Claude Hills Prospect Inferred Total 68,800 98,700 15,700 183,200 33,300 216,500 Nickel Grade 1.00% 0.97% 0.97% 0.98% Kt Metal Kt 688 958 152 1,798 68,800 98,700 15,700 183,200 Cobalt Grade 0.08% 0.08% 0.07% 0.08% 0.81% 0.95% 270 2,067 33,300 216,500 0.07% 0.07% Kt Metal Kt Fe203 Grade 48.7% 46.4% 42.7% 47.0% Kt Metal 33,500 45,800 6,700 86,000 68,800 98,700 15,700 183,200 33,300 216,500 38.7% 45.7% 12,900 98,900 54 74 11 139 23 161 ORE RESERVES ESTIMATE CONSOLIDATED SUMMARY & ANNUAL COMPARISON Mining Reserves are a subset of the Mineral Resource Estimate Kt JORC Category Wingellina Project Proved Probable Total - 167,500 167,500 Nickel Grade - 0.98% 0.98% Kt Metal Kt - 1,645 1,645 - 167,500 167,500 Cobalt Grade - 0.08% 0.08% Kt Metal Kt - 128 128 - 167,500 167,500 Fe203 Grade - 47.3% 47.3% Kt Metal - 79,300 79,300 Note: There were no additions or depletions during the year. The geographic region for Nickel Resources and Reserves is Australia. 122 TABLES OF MINERAL RESOURCES AND ORE RESERVES OTHER BASE METALS EXPLORER 108 PROJECT MINERAL RESOURCES ESTIMATES CONSOLIDATED SUMMARY & ANNUAL COMPARISON (Calculated as at 30 June 2014) Zinc Lead Kt Grade Kt Metal Kt Grade Kt Metal Kt - 8,438 3,429 11,868 - 3.41% 2.81% 3.24% - 287 96 384 - 8,438 3,429 11,868 - 2.05% 1.88% 2.00% - 172 64 237 - 8,438 3,429 11,868 Silver Grade - 14.3 3.3 11.14 Koz Metal - 3,879 364 4,243 JORC Category Measured Indicated Inferred Total Note: 2.5% Pb + Zn cut-off The geographic region for Other Base Metals Resources and Reserves is Australia. COMPETENT PERSONS STATEMENTS The information in this report that relates to Mineral Resources compiled by Metals X technical employees under the supervision of Mr. Jake Russell B.Sc. (Hons), who is a member of the Australian Institute of Geoscientists. Mr Russell is a full-time employee of the company, and has sufficient experience which is relevant to the styles of mineralisation and types of deposit under consideration and to the activities which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr Russell consents to the inclusion in this report of the matters based on his information in the form and context in which it appears. The information in this Ore Reserve estimate report is compiled by Metals X technical employees under the supervision of Mr Michael Poepjes BEng (Mining Engineering), MSc (Min. Econ) M.AusIMM. Mr Poepjes is a full-time employee of the company. Mr Poepjes has sufficient experience which is relevant to the styles of mineralisation and types of deposit under consideration and to the activities which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr Poepjes consents to the inclusion in this report of the matters based on his information in the form and context in which it appears. The information in this report that relates to Exploration Targets and Exploration Results is based on information compiled by Mr Peter Cook BSc (App. Geol.), MSc (Min. Econ.) MAusIMM who has sufficient experience that is relevant to the styles of mineralisation, the types of deposits under consideration and the activity being undertaken to qualify as a Competent Person as defined in the 2004 Edition of the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Cook is a full time employee of Metals X Limited and consents to the inclusion in the reports of the matters based on his information in the form and context in which it appears. TABLES OF MINERAL RESOURCES AND ORE RESERVES 123 This page deliberately left blank. 

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